Gold Upside Faces Delay Amid Dollar Strength

Gold fluctuates between a stronger US dollar and the Fed outlook as economists look beyond the imminent interest rate cut and towards a slower pace of easing next year.​

Cut, and Then Pause

Futures markets and economists overwhelmingly expect the Fed to cut rates at the conclusion of its two-day policy meeting on Wednesday, with attention shifting to the FOMC and its Chairman's outlook for the year ahead. Fed Chair Jerpme Powell has kept a somewhat cautious stance around expectations for Fed policy in 2025 during recent appearances, pointing to increased uncertainty stemming from fiscal policy changes under the incoming Trump administration. The markets project the Fed to pause its easing cycle as inflation has crept higher over recent months.

Market turbulence could surface if the Fed fails to provide clear guidance about a potential pause, particularly as the first meeting of 2025 falls just a week after Trump takes office. Fed officials and market participants might opt to examine the annual data released after the holiday period to gain deeper insights into economic conditions. The employment figures last month presented mixed signals, with job creation surpassing expectations while showing signs of loosening hiring conditions that could warrant Fed easing. While inflation was expected to increase through the latter part of the year before declining in the coming first quarter, investors and Fed officials might seek confirmation of the predicted inflation downturn before resuming the easing cycle.

A Golden Opportunity

Last week's inflation data left gold on a positive trajectory, coming in line with forecasts and supporting expectations of softer inflation and continued policy easing through next year. Both economists and markets have priced in three additional rate cuts totalling 75 bps through 2025, leading some analysts to forecast the yellow metal at $3,000/oz by year-end.

Reaching the target might face delays as dollar strength persists in the near term, especially if the Fed signals a pause at the start of the new year to assess the impact of its previous three consecutive cuts, which have already reduced rates by 100 bps. Market sentiment might remain cautious until there is clarity on the implementation and real-world effects of Trump's proposed economic plans before taking a definitive stance about the trajectory of Treasury yields and, by extension, gold's potential surge next year.

Gold Consolidates

After the record peak at $2800 per ounce, gold has formed an established bullish structure above $2550 per ounce, with prices consolidating between $2630 and $2760. The formation of higher lows and lower highs in the medium and shorter term suggests a triangle pattern may be forming, which points to selling pressure towards $2600 while $2690 provides resistance.

Source: SpreadEx / GOLD

Key Takeaways

Gold faces a critical test as markets start to consider the Fed's potential pause in early 2025 despite expectations of cutting rates in December. While the yellow metal maintains its bullish trajectory in the midst of the Fed’s easing cycle, dollar strength could temporarily cap gains. The technical setup suggests continued upside potential, though careful monitoring of support levels remains crucial for maintaining the broader uptrend.