At the beginning of the Asian market on Tuesday (December 3), spot gold fluctuated slightly higher and is currently trading around $2641.13 per ounce. Gold prices fell 0.44% on Monday, closing at $2638.69 per ounce, ending a four-day uptrend as the US dollar rebounded sharply due to the escalation of the political crisis in France. However, the situation in France also provided some safe haven support for gold prices. In addition, several Federal Reserve officials believe that the Fed will further cut interest rates, and market expectations for the Fed's December rate cut are heating up, still providing support for gold prices.

Investors are waiting for more key economic data and clues on the trend of Federal Reserve interest rates.

Previously, the president of the far right National Union in France, Valdera, stated that unless there is a "last-minute miracle," the party may support a motion of no confidence in the coming days.

National Union leader Le Pen has demanded that French Prime Minister Barnier meet the party's budget requirements by Monday.

Kyle Chapman, a foreign exchange market analyst at Ballinger Group, wrote in an email comment: "The collapse of political confidence in France and the once again higher than expected economic activity data in the United States have given the euro a bad start in December." Ballinger Group provides currency risk management and trading services.

As expected, the interim government is now facing a vote of no confidence and is likely to fail, and new elections will not be held until the summer, so there is no clear path to reducing the deficit in the short term“

The concern about the possible collapse of the French government is increasing day by day, which will put a halt to plans to curb the sharp increase in budget deficits. The US dollar index surged 0.59% on Monday, hitting its strongest single day performance in nearly four weeks. For buyers who use other currencies, the cost of gold priced in US dollars is higher, putting pressure on gold.

Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, stated that part of the reason for the strengthening of the US dollar is due to President elect Trump's statement that BRICS countries should avoid attempting to replace the dollar, which has put pressure on gold prices.

Trump urges BRICS countries not to support or create alternatives to the US dollar, and threatens to impose 100% tariffs otherwise.

This has intensified people's concerns that US interest rates will remain high for a longer period of time. This concern has triggered a 3% decline in non yield gold in November, the largest monthly drop since September 2023.

At the same time, the US dollar continued to rise after the release of strong US manufacturing data by the Institute for Supply Management (ISM) and S&P Global. However, despite the generally positive data, Federal Reserve Governor Waller stated on Monday that he is inclined to lower the benchmark interest rate at the meeting on December 17-18 due to the still restrictive nature of monetary policy.

Monday's data once again showed the resilience of the US economy, with manufacturing activity improving in November, orders increasing for the first time in eight months, and factories facing a significant drop in input prices.

The Purchasing Managers' Index for Manufacturing by the American Institute for Supply Management rose to 48.4 last month and 46.5 in October, the lowest level since July 2023.

The final value of the S&P Global Manufacturing Purchasing Managers' Index also rose from the initial estimate of 48.8 to 49.7.

Juan Perez, the head of trading at Monex USA, said, "Due to the stable economic situation in the United States, it is reasonable for the US dollar to continue to rise in the face of more headwinds in economies across the ocean. (Positive data) will only increase US bond yields and even lower expectations for the Federal Reserve to implement loose monetary policy

However, Federal Reserve Governor Waller pointed out on Monday that "policy still has sufficient constraints, so we will not significantly change the stance of monetary policy by cutting rates again at the next meeting, and will leave enough room to slow down the pace of rate cuts in the future if needed.

After Waller's comments, according to CME's FedWatch, the market raised the probability of a 25 basis point rate cut this month from 66% late last Friday to 79%. At the same time, the probability of interest rate futures suspending the Federal Reserve has decreased from 34% last Friday to 21%. At present, the market expects the probability of the Federal Reserve cutting interest rates in December to be about 74.5%.

New York Fed President Williams also stated on the same day that as inflationary pressures continue to cool, the Fed may further lower its benchmark interest rate for a period of time.

However, Atlanta Fed President Bostic stated that he is open to whether the Fed will cut interest rates again at its December meeting, and the upcoming employment data will be crucial in making this decision.

This week's major US economic events include the release of job vacancy data, ADP employment report, and non farm payroll data. The speeches of Federal Reserve officials, including Chairman Powell, will also attract attention. The vacancy data will be released at 23:00 today, and this trading day will also see a speech by Federal Reserve Governor Kugler on labor markets and monetary policy. Investors need to pay close attention.

In addition, investors need to continue to pay attention to news related to the geopolitical situation.

Daily chart of spot gold

Israel and Hezbollah launch mutual attacks, ceasefire agreement in jeopardy

On Monday, Israel attacked two towns in southern Lebanon, Talusa and Harris, resulting in at least nine deaths and three injuries. The Israeli military claimed to have hit dozens of Hezbollah targets throughout Lebanon.

Earlier on Monday, Lebanese authorities also reported that two people were killed in Israeli attacks on other areas of southern Lebanon, including a national security personnel on duty, bringing the death toll for the day to 11. The ceasefire agreement reached under the mediation of the United States has been in effect for less than a week, and the exchange of fire between the two sides has made the agreement even more fragile.

US manufacturing contraction slows in November, but outlook remains uncertain

The pace of manufacturing contraction in the United States slowed down in November, with new orders increasing for the first time in eight months and factory input prices falling significantly.

The Institute for Supply Management (ISM) reported on Monday that the manufacturing industry in the United States has improved, which is consistent with other sentiment surveys.

However, the manufacturing industry has not yet emerged from its predicament. Timothy Fiore, Chairman of the ISM Manufacturing Business Survey Committee, pointed out that "production execution slowed down in November, consistent with sluggish demand and weak backlog orders," and "suppliers continue to have production capacity and delivery times have improved, but some product shortages have reappeared. Economists agree with this.

It is worth noting that after the 2016 election, as business optimism swelled, the ISM index rose for four consecutive months, "said Stephen Stanley, Chief US Economist at Santander U.S. Capital Markets“

ISM reported that the US manufacturing PMI rose to 48.4 in November and 46.5 in October, the lowest level since July 2023. A PMI below 50 indicates a contraction in the manufacturing industry, which accounts for 10.3% of the total economy.

Economists surveyed by Reuters previously predicted 47.5. The November PMI fell below the boom bust threshold of 50 for the eighth consecutive month, but remained above 42.5. The ISM stated that a PMI above 42.5 for a period of time typically indicates overall economic expansion.

Only three industries reported growth, including computers and electronics, as well as electrical equipment, appliances, and components. Among the 11 industries reported to be shrinking, there are transportation equipment, machinery, miscellaneous manufacturing, chemical products, and primary metals.

The manufacturer's comments are quite pessimistic. The transportation equipment manufacturer stated that "business is still slow" and expects that "the situation will be similar in the first half of 2025".

Some machinery manufacturers have stated that the slowdown in the construction industry has resulted in a surplus of finished products, therefore requiring an additional two-week shutdown during the Christmas holiday period. The metal processing product manufacturer stated that customers are reducing inventory and added that "preliminary forecasts for 2025 have significantly decreased.

The ISM US PMI indicates that the manufacturing industry is still deeply mired in recession. But it is not without merit. Enterprise equipment spending has achieved strong growth for two consecutive quarters, which to some extent reflects the booming development of artificial intelligence and the demand for commercial aircraft.

The forward-looking new orders sub index of the ISM survey rose from 47.1 in October to 50.4, marking the first time since March that it has entered the expansion zone. However, the production sub index remained unchanged and remained below the boom bust line.

The manufacturer input price index fell from 54.8 in October to 50.3, indicating that there is still room for commodity prices to decline, but the increase in tariffs may lead to a reversal in price trends.

The supplier delivery index for this survey decreased from 52.0 in October to 48.7. Below 50 indicates an accelerated delivery speed.

Factory employment continues to improve, but remains below the boom bust line, with the manufacturing employment index rising from 44.4 in October to 48.1. ISM pointed out that the number of layoffs last month has decreased compared to October. This is consistent with the expected acceleration of non farm employment growth in November.

A Reuters survey of economists estimates that there will be an increase of 200000 job opportunities in November. In October, there was only an increase of 12000, the lowest since December 2020. The highly anticipated employment report will be released on Friday.

Another report from the US Department of Commerce shows that construction spending increased by 0.4% month on month in October, driven by the construction of single family homes, with an expected increase of 0.2%.

This brings hope for a rebound in residential investment after two consecutive quarters of contraction. The Atlanta Fed has raised its forecast for the annualized growth rate of gross domestic product (GDP) for the fourth quarter from the previous 2.7% to 3.2%. The quarter on quarter economic growth rate was 2.8%.

Federal Reserve's Williams said that as inflationary pressures continue to cool, there may be further interest rate cuts in the future

New York Fed President Williams said on Monday that as inflationary pressures continue to cool, the Fed may further lower benchmark interest rates for a period of time.

In his prepared speech for the Queens Chamber of Commerce event in New York, Williams said, 'Monetary policy remains in a restrictive zone and will support inflation to continue falling towards our 2% target.'.

Looking ahead, "I expect that over time, it will be appropriate to continue adopting more neutral policy settings," Williams said. The policy path will depend on the data. If we have learned anything in the past five years, it is that the outlook remains highly uncertain

Williams did not provide clear guidance on the timing of the interest rate cut and whether he believes the Federal Open Market Committee (FOMC) will lower rates at this month's meeting. The current target range for the Federal Reserve's benchmark interest rate is 4.5% -4.75%.

Williams stated that the economic situation is "good" and the labor market is "strong". He believes that over time, inflation will continue to fall towards the 2% target, but he warns that this process may not be smooth sailing.

He said that the economy should grow by 2.5% or even more this year, and the unemployment rate in the "coming months" should be between 4% and 4.25%. He also stated that this year's inflation rate should be 2.25%, and the job market is unlikely to become a source of upward pressure on prices

Federal Reserve's Waller is inclined to cut interest rates in December, stating that policy will still have sufficient restrictions

Federal Reserve Governor Waller stated on Monday that he is inclined to lower the benchmark interest rate at the meeting on December 17-18. Monetary policy still has sufficient constraints to continue putting downward pressure on inflation, while the labor market is generally in a balanced state, which the Fed hopes to maintain.

Waller said at a central bank seminar organized by the American Institute for Economic Research, "Policy still has enough constraints, so we will not significantly change the stance of monetary policy by cutting interest rates again at the next meeting, and will be able to leave enough space to slow down the pace of interest rate cuts when needed in the future to continue making progress towards the inflation target

Meanwhile, Waller stated that if there are signs of stagnant inflation progress, future employment, inflation, and consumer spending data could still sway him towards a pause in interest rate cuts.

Waller said, "All of this information will help me decide whether to cut interest rates or skip. As of today, I am inclined to continue the work we have started, which is to return monetary policy to a more neutral environment." He has been a key figure in influencing the Federal Reserve's inflation response strategy.

The Federal Reserve began cutting interest rates in September, with an initial rate cut of 50 basis points, followed by a 25 basis point rate cut in November.

People expect the Federal Reserve to cut interest rates by another 25 basis points in December, but recent inflation data has raised concerns that progress may have stalled. One key indicator, the Personal Consumption Expenditures (PCE) price index excluding food and energy prices, has been stuck in the range of 2.6% -2.8% year-on-year since May, far exceeding the Federal Reserve's 2% target.

Waller said, "If the data we have between today and the next meeting unexpectedly suggests that our predictions of a slowdown in inflation and an economy that remains stable are incorrect, then I will support keeping the policy rate unchanged

He said that interest rates may continue to decline next year, but the pace and magnitude of the decline are still to be determined. The Federal Reserve will release new economic forecasts at its next meeting, which will show policymakers' expectations for next year's rate cuts.

The target range for the Federal Reserve's benchmark interest rate is currently between 4.5% and 4.75%.

There is strong evidence to suggest that policies still have significant limitations, and another rate cut will only mean that we are no longer putting as much pressure on the brakes, "Waller said. I expect to continue cutting interest rates next year until we approach a more neutral policy rate setting“

Waller said that recent data "has shown a fairly consistent pattern over the past year, with demand slowing relative to supply, which is in line with the trend of inflation continuing to move towards 2%, and there has been no unwelcome weakness in the labor market.

Federal Reserve Bostic said it is open to whether to cut interest rates in December, and employment data is key to decision-making

Atlanta Fed President Bostic said on Monday that he is open to whether the Fed will cut interest rates again at its December meeting, and the upcoming employment data will be crucial for making this decision.

There is a lot of uncertainty, "Bostic said in an interview with reporters." I won't attend this conference with a fixed feeling... We have important data points coming out soon, "including the November employment data to be released on Friday.

Bostic also stated in an article published on Monday that his basic judgment is still that inflation will continue to decline towards the Fed's 2% target, although the extent and speed of interest rate cuts to ensure this goal is achieved while avoiding any unnecessary damage to the job market remains an unresolved issue.

My basic assessment of inflation is still that we are on track to reach the 2% target, "Bostic said. Housing costs are a major reason for inflation stagnating above the target, but it may be slowing down, with business contacts reporting that economic growth and price pressures are easing.

Bostic is one of the decision-makers with voting power on Federal Reserve policy this year. He said, "Although some indicators measuring inflation have made little progress in recent months, after weighing all the data, I do not believe that the recent fluctuations are a sign of complete stagnation in achieving price stability.

He did not indicate in the prepared speech whether he agreed to lower interest rates at the upcoming meeting on December 17-18. Investors expect a rate cut. The Federal Reserve cut interest rates at its November meeting, lowering the target range for benchmark interest rates to 4.5% -4.75%.

Bostic stated that the Federal Reserve's goal is to maintain full employment while keeping inflation at a level of 2%, and the risks between the two are roughly balanced. Therefore, it is reasonable for the Fed to shift its monetary policy towards a stance that neither stimulates nor suppresses economic activity.

However, Bostic stated that the amount or speed at which the Federal Reserve needs to further cut interest rates to reach this level is an unresolved issue, currently affected by potential weakness in the job market and uncertainty about the economic development path.

In the forecast released in September, Bostic stated that he expects the Federal Reserve to only need to lower its benchmark interest rate by 75 basis points this year, which is equivalent to the magnitude of the already lowered rate. He said he has not yet made a new forecast on the appropriate magnitude of interest rate cuts that may be implemented in 2025. Bostic said that overall, he believes that the job market is cooling down in an orderly manner with high interest rates... which is welcome news

Although he said he believes the economy will enter 2025 at a steady pace, he acknowledges that this may change, especially considering the risks of international events and US policy developments. The incoming Trump administration has promised to implement policies including import tariffs, tax cuts, and tightening immigration, which some economists believe may lead to prices starting to rise again.

Bostic said, "Geopolitical uncertainty persists both domestically and internationally, and may once again trigger inflationary pressures." A series of positive macroeconomic developments have not been guaranteed. There are still uncertainties in various aspects, and the health of the labor market and price stability are facing risks.