Gold prices were little changed on Tuesday as investors cautiously anticipated further cues from the policy meeting outcome of the US Federal Reserve.
Prices have traded in a narrow range this week, with expectations of another interest rate cut by the US central bank.
“Gold price holds the previous rebound above $2,650 early Tuesday as buyers remain in control amid sustained weakness in the US Dollar (USD) and sluggish US Treasury bond yields,” Dhwani Mehta, analyst at FXstreet, said in a report.
According to Mehta, the focus will be on the US retail sales data later on Tuesday as the US Fed begins its policy meeting.
At the time of writing, the February gold contract on COMEX was at $2,666.80 per ounce, down 0.1% from the previous close.
Gold prices: Fed rate cut priced in
According to the CME FedWatch tool, traders have priced in a 95.4% probability of the US central bank cutting rates by 25 basis points.
The central bank had already cut interest by 75 bps over September and November.
Experts had earlier expected the central bank to cut rates by 150 bps this year. However, if the December rate cut is realized, the Fed would have cut interest rates by 100 bps.
Similarly, analysts expect the Fed to reduce rates twice in 2025.
Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report:
A Fed rate cut of 25 basis points on Wednesday next week is now fully priced in.
Concerns over Fed pausing rate-cutting cycle
There are growing concerns that the US central bank may slow down its rate-cutting cycle in 2025.
The concerns stem from the fact that inflation in the US has remained sticky and the labor market resilient.
“Growing expectations that the Fed could opt for fewer rate cuts in 2025 and likely pause its easing cycle in January act as a headwind to the Gold price turnaround,” Mehta said.
Markets eagerly await the Fed’s quarterly economic projections and Chairman Jerome Powell’s comments to gauge the US central bank’s path forward on interest rates next year, which could significantly impact the gold price.
Moreover, US President-elect Donald Trump’s expansionary economic policies and tax cuts could also prompt the Fed to slow down its monetary policy easing.
Trump’s proposed tax cuts and tariffs on imported goods are expected to raise domestic prices, feeding into higher inflation.
Technical analysis for gold prices
“One thing is for sure: $2,720 is the next big hurdle for gold, while $2,600 is support. The next two weeks will show whether it has enough momentum to rally into the holiday season, or if investors have other things on their mind,” David Morrison, senior market analyst at Trade Nation, said.
According to Mehta, the 14-day relative strength index was trading flat around the 50 level, which suggested a lack of clear directional bias.
“Gold buyers must scale the 50-day SMA at $2,671 to offer extra legs to the recent rebound. The next upside target is at the $2,700 level,” Mehta said.
If gold prices can scale above the $2,700 per ounce level once again, the yellow metal could rise around $2,726 an ounce.
According to Commerzbank, gold could rise briefly if there is another cut in interest rates this week. But, the German bank does not see the rise in prices to continue into next year.
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