December 24, ATFX Market Review: This Thursday marks Christmas, a major Western holiday, leading to trading suspensions at the New York Stock Exchange, CME Group, and ICE-listed products. On Christmas Eve, U.S. stock and futures markets will also close hours early. Frequent market closures typically reduce trading volumes, suggesting lower liquidity in capital markets this week.
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Yet, gold and silver have defied expectations during this historically quiet Christmas week with a staggering rally. In the first three trading days, gold surged from an opening price of $4,339 to an intraday high of $4,525, a 4.3% gain, while silver jumped from $67.26 to $72.68, up 8.1%.
Multiple factors drive gold and silver's upward momentum, but few can trigger such explosive rallies. While expectations of Fed rate cuts, potential aggressive easing under Powell's successor Hassett, and Trump's radical policies may support precious metals, their impact tends to be gradual rather than explosive.
Historically, such frenzied rallies often link to geopolitical tensions and safe-haven demand. Escalating U.S.-Venezuela standoffs in the Caribbean region raise concerns. However, Trump's trademark brinkmanship rarely translates into substantive action, as it risks entangling the U.S. in prolonged conflicts.
The current surge suggests some investors are betting on potential U.S. military engagement in the Caribbean, where heightened tensions could spark conflict. Should this scenario materialize, the rally may extend. Realistically, both sides are likely to exercise restraint.
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In bond markets, U.S. Treasury yields have oscillated between 3.95% and 4.19% over four months. With federal funds rates at 3.5-3.75%, the 44-basis-point spread above the upper limit indicates only mild monetary tightening. One-year yields at 3.52%, near the policy floor, suggest minimal near-term rate cut prospects.
Despite the dollar index hitting 97.7 in Asian trading—its lowest level—medium-term Fed easing appears unlikely, especially after Q3 GDP growth accelerated to 4.3%. CME's FedWatch tool now prices just a 13.3% chance of rate cuts. While gold and silver's short-term rally persists, diminishing bullish catalysts warn of potential pullback risks as markets approach peak levels.
