Gold kicked off the week by hitting another all-time high! Will the US stock market's Christmas rally arrive as expected?
**Last Week's Market Recap** Last week was packed with market-moving events. Mixed US non-farm payroll data and lower-than-expected CPI figures slightly increased expectations for a Fed rate cut in January. The Bank of Japan (BOJ) raised rates as anticipated, lifting them to a 30-year high, but its statement was less hawkish than markets had predicted. These two factors combined to significantly boost risk appetite.
The three major US stock indices closed higher on Friday, with the Nasdaq Composite recovering from early-week losses to end in positive territory.
Precious metals continued their strong performance. Gold climbed steadily to $4,338, surpassing its previous record high this week. Silver surged for the fourth consecutive week, breaking above $67, while platinum exceeded $1,900—both setting new all-time highs. Palladium wasn’t far behind, soaring 15% in a single week to reach a three-year peak.
Despite the BOJ’s rate hike, the yen weakened instead of strengthening, with USD/JPY rising sharply to 157.75, nearing its yearly high. GBP/JPY hit a 17-year peak, and EUR/JPY reached a record high.
Notably, Japan is the only major central bank to hike rates over the past two years (while others like the Fed were cutting), yet the yen remains the worst-performing major currency this year against the dollar—a stark contrast to the Swiss franc, another safe-haven currency. This suggests that the yen’s carry-trade appeal hasn’t faded despite the rate hike. Additionally, Japan’s large-scale fiscal stimulus has raised concerns about the outlook for Japanese government bonds and the yen.
Although the BOJ governor didn’t provide a clear timeline for future hikes (hinting at a gradual approach), markets expect 2-3 more rate increases in 2026, with a 57% chance of a January hike. Rate hike expectations and intervention risks may cap USD/JPY’s upside. Japan’s Finance Ministry has warned that the negative impact of rapid yen depreciation now outweighs its benefits.
The euro snapped a three-week winning streak after the ECB held rates steady. The pound ended flat at 1.3375 following the Bank of England’s "hawkish cut." Bitcoin, a gauge of market liquidity and risk sentiment, eked out a weekly gain to close at $88,639 but remains in a consolidation phase.
**This Week’s Outlook** **· US Stocks: Christmas Rally?** The BOJ’s less hawkish-than-expected statement has temporarily removed a major market uncertainty, easing liquidity concerns and setting the stage for a potential Christmas rally.
The "Christmas rally" refers to the historical tendency for US stocks to rise more than usual during the last five trading days of the year and the first two of the new year. Since 1950, the S&P 500 has averaged a 1.3% gain during this period. This year’s window begins on Wednesday.
However, the S&P 500 and Nasdaq Composite remain in negative territory for December so far, and AI-related trading risks linger. Historically, the S&P 500 has averaged just a 0.5% gain in December over the past 25 years and 0.2% over the past five, making it one of the weaker months for stocks.
**· US Economic Data** The US will release Q3 GDP on Tuesday, expected to show 3.2% growth (down from 3.8% previously). Stronger-than-expected growth could dampen rate-cut bets, boosting the dollar. The Atlanta Fed’s GDPNow model projects 3.5% growth for Q3. October durable goods orders will also be released, while weekly jobless claims will be moved up to Wednesday due to the holiday.
**· BOJ Governor’s Speech** The BOJ will publish October meeting minutes on Wednesday, followed by a speech from its governor on Thursday. Traders will focus on clues about future rate moves. With liquidity thinning ahead of holidays, sharp swings in the yen—currently under scrutiny—are possible. Tokyo’s December CPI data, a leading indicator for nationwide inflation, is due Friday.
**XAU/USD (Gold) – 4-Hour Chart** Gold is within striking distance of its record high, and current sentiment and macro conditions could help bulls achieve a breakout—but first, they must clear resistance at last week’s peak of $4,374. A decisive move above this level could open further upside, mirroring other precious metals.
Initial support lies at $4,340/50, followed by $4,300. With year-end holidays approaching, gold’s one-week implied volatility has dropped from 21.6% to 17%, suggesting a likely trading range of $4,234.03–$4,443.39 (around last Friday’s close).
**Nasdaq 100 – 4-Hour Chart** After breaking through key resistance at 25,200 and its neckline, the Nasdaq 100 may extend gains toward the trendline at 25,670 and the prior high of 25,800. A breakout could retest October’s record peak. In the current optimistic environment, buying on dips remains a viable strategy.
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