Gold Retreats From Record Highs as Markets Rebalance Risk And Policy Expectations

Source: CNBC

Chinese banks issued the smallest amount of new loans last year since 2018, with credit expansion continuing to slow in December. This downturn highlights sluggish demand from both businesses and consumers, posing a significant drag on the nation's economic growth.

The slowdown in loan growth is not a recent development. It began in early 2023 and persisted throughout the year, signaling deep-seated weakness in the economy. Tepid consumer spending and low business investment have pushed China into a deflationary environment, which in turn reduces the incentive to borrow by eroding corporate profits and household wages.

Drivers Behind the Credit Contraction

Several factors are contributing to the decline in credit expansion.

Initially, a surge in government bond sales during the first half of last year provided a temporary boost to overall credit growth. However, the impact of this stimulus has since diminished, partly because a higher base of comparison from 2024 has come into effect, pulling down the expansion rate.

Another headwind is the government's campaign to reduce "hidden" or off-balance-sheet debt, an effort that began in late 2024. As part of this initiative, Beijing has instructed local authorities to issue new bonds to replace these hidden liabilities, some of which were held as bank loans.

The Central Bank's Patient Approach

Despite the deteriorating credit data, officials are not expected to intervene aggressively in the short term. The People's Bank of China (PBOC) has signaled a tolerance for the slowdown, framing it as part of a patient transition toward new economic growth drivers like advanced technology.

With the central bank taking a secondary role in managing an economy held back by weak demand and structural imbalances, fiscal stimulus is now expected to provide the primary support.

Modest Easing Unlikely to Reverse Trend

Looking ahead, economists surveyed by Bloomberg anticipate the PBOC will implement modest easing measures in 2026, including policy interest rate cuts totaling 20 basis points.

However, such moves are unlikely to reverse the decline in credit expansion on their own. Without a fundamental turnaround in the demand for financing from companies and individuals, the credit slowdown is poised to continue.

The UK economy expanded more than expected in November, providing a dose of positive news and easing concerns about a potential slump at the end of 2025.

Data from the Office for National Statistics (ONS) released on Thursday showed that Gross Domestic Product (GDP) rose by 0.3%. This figure marks a solid rebound from the 0.1% contraction seen in the previous month and comfortably outpaced the 0.1% growth that economists had predicted.

The British pound, which had seen a slight dip against the US dollar, recovered its footing after the data was published, trading largely unchanged at $1.3442.

Manufacturing Rebound Drives Economic Expansion

A significant recovery in the manufacturing sector was the primary driver behind the surprise growth. Industrial production was responsible for half of the entire GDP increase, with the manufacturing sub-sector growing by a robust 2.1%. The services sector also contributed, expanding by 0.3%.

The ONS highlighted a strong comeback in production at Jaguar Land Rover as a key factor. The car manufacturer's operations had been disrupted by a cyberattack earlier in the autumn.

"Data for the latest month show that this industry has now largely recovered," noted Liz McKeown, ONS Director of Economic Statistics, referencing the hit to car production.

Despite the strong monthly performance, the broader trend remains modest. On a three-month basis, economic output saw a narrow increase of just 0.1%. November was only the second month in the latter half of the year to record economic expansion.

Economic Outlook and Upcoming Fiscal Headwinds

The stronger-than-expected November figures may help calm worries that the economy was deteriorating, especially after recent signs of mounting job losses and cautious consumer spending.

Economists anticipate that economic activity could pick up in early 2026. This outlook is based on the expectation that several temporary drags—including the Jaguar Land Rover cyberattack, budget uncertainty, and strikes—will begin to fade.

However, the economy faces new fiscal pressures. Chancellor Rachel Reeves announced £26 billion ($35 billion) in tax increases in her budget on November 26. While the implementation of these measures is staggered, the new tax burden will primarily fall on households. This contrasts with the previous year's fiscal event, where businesses shouldered the bulk of the tax hikes.

Gold prices declined in Asian trading on Thursday, snapping a three-day streak of record highs. The pullback was driven by comments from U.S. President Donald Trump that eased geopolitical tensions with Iran and reduced uncertainty surrounding the Federal Reserve, dampening demand for the safe-haven metal.

Spot gold fell 0.4% to $4,609.89 per ounce, while U.S. Gold Futures also dropped 0.4% to $4,615.10 per ounce. The move comes after gold reached an all-time high of $4,642.72 in the previous session.

Softer U.S. Stance on Iran Cools Demand

A significant part of gold's recent rally was fueled by fears of escalating conflict in the Middle East. Investors worried that growing unrest in Iran could trigger U.S. military action, driving a flight to safety.

However, those concerns subsided after President Trump signaled a more moderate position. He stated that he had been assured Iranian authorities would stop killing protesters and that he did not believe large-scale executions were planned. These remarks lowered the immediate probability of a U.S. military response, reducing the geopolitical risk premium that had been supporting gold prices.

Fed Stability Calms Investor Nerves

Gold also faced pressure after Trump addressed concerns about the independence of the U.S. central bank. In a Reuters interview, the president confirmed he had no intention of firing Federal Reserve Chair Jerome Powell, despite an ongoing investigation.

This statement helped ease investor anxiety over the stability and autonomy of U.S. monetary policy, diminishing another key reason for holding gold as a hedge against institutional uncertainty.

Technical Factors and Long-Term Outlook

Analysts also attributed the price drop to simple profit-taking after the precious metal's sharp and rapid ascent pushed it well above key technical levels.

Despite Thursday's decline, the fundamental case for gold remains supported by several underlying factors:

• Expected U.S. Interest Rate Cuts: Anticipation of lower interest rates later this year continues to provide a floor for gold prices. Lower rates reduce the opportunity cost of holding a non-yielding asset like gold.

• Persistent Geopolitical Risks: While immediate tensions have cooled, broader global uncertainties remain a long-term tailwind.

• Strong Central Bank Buying: Consistent purchases from central banks around the world continue to generate steady demand.

Broader Sell-Off in Metal Markets

The downturn was not limited to gold, as other metals saw even sharper declines. Silver prices plunged more than 3% to $89.76 per ounce, and platinum dropped 2.5% to $2,323.52 per ounce.

Industrial metals also fell. Benchmark Copper Futures on the London Metal Exchange slipped 1.1% to $13,087.20 a ton, while U.S. Copper Futures declined 1.6% to $5.99 a pound.

A year after Donald Trump’s return to the White House, a sweeping global survey suggests his "Make America Great Again" agenda is widely seen as making China great instead. The 21-country poll, conducted for the European Council on Foreign Relations (ECFR), reveals that the United States is less feared by its adversaries and viewed as increasingly distant by its traditional allies, particularly in Europe.

Figure 1: The shifting global balance of power, as articulated in the ECFR survey, is often personified by the relationship between the United States under Donald Trump and China under Xi Jinping.

The study found that most Europeans no longer consider the US a reliable partner and increasingly support rearmament. In a notable shift, Russians now view the EU as a greater adversary than the US, while Ukrainians are turning more to Brussels than to Washington for support.

China's Growing Influence is Widely Expected

The poll, which surveyed nearly 26,000 people across Europe, the US, Asia, and other key nations, found a strong consensus that China's global influence will grow over the next decade.

Majorities in nearly every country surveyed shared this expectation, with figures ranging from 83% in South Africa and 72% in Brazil to 54% in the US and 53% across 10 EU states. Most EU citizens also anticipate China will soon lead the world in electric vehicles and renewable energy.

Despite this anticipated rise, few expressed significant concern. Only in Ukraine and South Korea did majorities see China as a rival or adversary. In fact, more people in South Africa, India, and Brazil now view China as an ally compared to two years ago. In South Africa (85%), Russia (86%), and Brazil (73%), clear majorities see China as either an ally or a necessary partner. The EU's view remained stable, with 45% considering China a necessary partner.

America's Status as an Ally Declines

While China's image improves, perceptions of the United States as an ally have soured in almost all surveyed countries. India is now the only nation where a majority still feels the US is an ally that shares its values and interests.

The shift among EU citizens is particularly stark. Only 16% now see the US as an ally, while a striking 20% view it as either a rival or an enemy. Elsewhere, American prestige is also in decline.

At the same time, expectations for Donald Trump's presidency have fallen, sometimes dramatically. Compared to 12 months ago, fewer people believe his re-election is good for US citizens, their own countries, or global peace.

Shifting Alliances in Eastern Europe

The survey, part of a series with Oxford University's Europe in a Changing World project, highlights how the shifting balance of power is altering perceptions, most notably in Russia.

As the war in Ukraine approaches its fifth year, a majority of Russians (51%) now see Europe as an adversary, up from 41% last year. Meanwhile, fewer Russians (37%) consider the US an adversary compared to 12 months ago (48%).

Ukrainians, conversely, are now more likely to view Europe as their key ally (39%) over the US (18%), a drop from 27% last year. This sentiment is echoed in China, where 61% of respondents see the US as a threat, but only 19% feel the same about the EU.

European Pessimism and the Search for a Role

The survey's authors—Ivan Krastev, Mark Leonard, and Timothy Garton Ash—note that China does not seem to dismiss the EU's importance. A majority of Chinese respondents (59%) consider the EU a great power, and 46% see it as a partner—a view shared by 40% of Americans, despite Trump's anti-EU rhetoric.

However, Europeans themselves are less optimistic. A plurality (46%) do not believe the EU is a power capable of dealing with the US or China on equal terms, a sentiment that has grown since 2024.

European citizens are also worried about the future, with many expressing concern about:

• The future of their countries (49%)

• The future of the world (51%)

• Russian aggression (40%)

• A major European war (55%)

Reflecting these anxieties, more than half (52%) support an increase in defense spending.

The report's authors conclude that the poll reveals "a world in which US actions were boosting China." They argue that with Trump's approach, "Europe could end up squeezed or simply ignored." European leaders, they state, must recognize that their citizens see the old order is over and must find "new ways not just to manage in a multipolar world, but to become a pole in that world—or disappear among the others."

The UK economy grew by 0.3% in November, marking a rebound from the 0.1% contraction seen in October, according to official figures from the Office for National Statistics.

This modest return to growth follows a period of economic sluggishness, partly linked to a cyber-attack on carmaker Jaguar Land Rover earlier in 2025 that hampered vehicle production. While a recovery was anticipated, its materialization has been slow.

Chancellor Rachel Reeves's November budget preceded the latest economic data.

Bank of England Rate Cuts Remain on the Table

Despite the positive November figure, the economic improvement is unlikely to alter the Bank of England's course. Policymakers are still widely expected to press ahead with further interest rate cuts.

Chancellor Rachel Reeves has been a vocal proponent of more rate cuts as a key part of the government's strategy to lower the cost of living for households across the country.

Policy Uncertainty and a Look Ahead

The growth data comes after a period of considerable uncertainty surrounding the Chancellor's second tax-raising budget, which was delivered on November 25. In the lead-up to the announcement, intense speculation and fluctuating tax rumors were blamed by business groups for discouraging both investment and consumer spending.

Looking forward, more crucial economic indicators are on the horizon. Key inflation and unemployment data are scheduled for release next week, which will provide a clearer picture of the economy's health.

Separately, Reeves is expected to announce additional support for the hospitality industry in the coming days. This move follows a backlash from the sector regarding recent changes to the business rates system.