The Federal Reserve’s interest rate outlook is weighing on gold sentiment
The Federal Reserve’s projection of just two 25 basis point rate cuts in 2025 has dampened bullish sentiment for gold. This cautious approach contrasts with earlier expectations for more aggressive policy easing. The prospect of prolonged higher interest rates increases the opportunity cost of holding non-yielding assets such as gold.
Fed Chairman Jerome Powell’s comments on the need for cautious policy easing, supported by stronger-than-expected third-quarter US growth data and falling weekly jobless claims, have strengthened this outlook. Traders now face limited optimism for gold in light of persistent inflation and resilient economic conditions.
Treasury yields and the dollar provide headwinds for gold
Rising US Treasury yields and a stronger dollar have increased pressure on gold prices. Treasury yields rose on robust economic data and Federal Reserve policy guidance, causing investors to gravitate toward interest-bearing assets over gold. In addition, the strength of the dollar has eroded gold’s appeal as a hedge, especially for foreign buyers facing higher exchange rates.
The decline in yields and the dollar ahead of today’s PCE release has provided temporary support for gold, although continued relief could depend on weaker-than-expected inflation data.
Downside risks remain pronounced for gold
Technical signals highlight significant downside risks for gold. The key support at $2536.85 is likely to be tested if selling pressure continues. A break below this level could accelerate a decline towards the 200-day moving average at $2472.31. Traders should keep a close eye on these levels, especially in the context of today’s inflation report.
PCE inflation data in focus for year-end trading direction
PCE inflation in November is expected to rise 0.2% month-on-month and 2.5% year-on-year. Cooling inflation could provide gold with temporary relief by lowering bond yields, but core inflation remains a critical variable. An upside surprise in the PCE data would likely increase pressure on gold prices again.