On Monday, December 16th, in the morning session of the Asian market, spot gold fluctuated narrowly and is currently trading around $2650.30/ounce. After hitting a new high of 2726.05 in over five weeks last Thursday, gold prices took profits and continued to decline on Friday, hitting a low of around $2646, a new low in nearly a week. US bond yields continued to rise and hit a new high in nearly three weeks, putting pressure on gold prices.

Technically speaking, there is still a risk of a short-term pullback in gold prices, but 2605-2666 is a volatile range in the early stages and a densely traded area that needs to be monitored.

Supported by loose monetary policy, strong central bank buying, and safe haven demand, gold has broken record highs multiple times this year.

Daniel Pavilonis, Senior Market Strategist at RJO Futures, pointed out, "Gold has performed very well this year, and we are entering the end of the year. There may be some closing positions in the last few weeks, but I think it will be short-lived. I believe gold will continue to rise sharply

Among the major central banks that held policy meetings last week, the European Central Bank cut interest rates by 25 basis points, the Canadian and Swiss central banks cut interest rates by 50 basis points, and the Reserve Bank of Australia, while maintaining its overnight lending rate, also abandoned its hawkish stance and released signals of possible policy easing.

This week, market attention will shift towards the Federal Reserve's interest rate decision. Although the inflation and labor market data released by the United States last week did not reverse the expectation of the Federal Reserve cutting interest rates next week, the market believes that the Fed's stance may be slightly hawkish, sending a signal to pause interest rate cuts in January to assess the inflation outlook and the resilience of the labor market.

Last Thursday's US data showed that the job market is gradually cooling down, as expected, and the producer price inflation rate is helping to strengthen the market's current assumption that the Federal Reserve will cut interest rates on December 18, but the pace of rate cuts in 2025 will slow down.

According to CME's FedWatch tool, the market fully expects the Federal Reserve to cut interest rates at its upcoming meeting, with a probability of up to 97%. However, the likelihood of another rate cut in January is only around 24%, with the most likely being in March.

StoneX's head of market research, Matt Weller, said, 'I think the Federal Reserve may pause for a period of time, maybe the entire first quarter of next year, and then only occasionally gradually cut interest rates as the Fed tries to improve its policies.'.

For example, Mary Daly, President of the Federal Reserve Bank of San Francisco, stated this month that she is confident in cutting interest rates in December, but advocates for a "more thoughtful and cautious approach" to further rate cuts.

The yield of 10-year US treasury bond bonds rose to a three week high last Friday. The market expects that the Federal Reserve will cut interest rates by 25 basis points this week, but it will send a signal to suspend interest rate cuts. The Federal Reserve is trying to deal with the situation that the inflation rate is higher than the 2% annual target.

The three-month and 10-year treasury bond interest rate spread turns positive for the first time since November 2022-- this part of the treasury bond yield curve has attracted market attention.

Federal Reserve policymakers have stated that the recent increase in price pressure is part of the bumpy path of inflation decline, not a reversal of the downward trend of inflation.

But analysts say that as President elect Trump takes office in January, they may also remain wary of another rise in price pressure.

R. They must consider that in an economy where inflation is currently showing stickiness, you are highly likely to receive further fiscal stimulus, deregulation, and certain aspects of tariffs, in which case you simply cannot prove why you want to continue cutting interest rates, "said Tom Fitzpatrick, Global Market Insights Director at J. O'Brien in New York

Federal Reserve policymakers will also update their economic forecasts and interest rate outlook, known as the "dot matrix," at the end of their two-day meeting on Wednesday.

Fitzpatrick said, "I think they will give a very strong guidance that they will pause interest rate cuts in January, and you will almost certainly see a correction in the terminal interest rate expectations in the dot matrix

After the Federal Reserve meeting, the preferred inflation indicator of the Fed - the Personal Consumption Expenditure Price Index - will be released on Friday.

Overall and core PCE data are expected to show a 0.2% increase in prices in November, with full year increases of 2.5% and 2.9%, respectively.

The yield of 10-year treasury bond rose 7.9 basis points to 4.403% on Friday, the highest since November 22. The yield of two-year treasury bond bonds, which are highly sensitive to the interest rate policy of the Federal Reserve, rose 5.5 basis points to 4.241% last Friday, the highest since November 27.

With the release of employment and inflation reports, nothing can prevent the Federal Reserve from cutting interest rates by 25 basis points on December 18th, "said Brian Jacobsen, Chief Economist at Annex Wealth Management

However, Gennadiy Goldberg, the head of US interest rate strategy at TD Securities in New York, pointed out, "Given that the economy may still perform well, I believe the Federal Reserve may decide to hold its fire, just wait and evaluate to ensure that inflation expectations do not accelerate again... The least they want is to have to restart the rate hike cycle next year because they missed some signals

The market is paying more attention to the latest economic forecast that will be released along with the resolution. These predictions will include the latest forecasts from Federal Reserve officials on how much further interest rate cuts will be made in 2025 or even 2026, taking into account multiple factors: more sticky than expected inflation rates, robust labor markets, the possibility of the US election outcome changing global trade and immigration patterns, and ongoing geopolitical risks.

Due to the multitude of factors to be evaluated, the emergence of multiple risks, and a significant amount of uncertainty, many analysts predict that the overall message conveyed by the Federal Reserve's policy statement on Wednesday, Chairman Powell's post meeting press conference, and the latest forecast will lean towards hawkishness. Compared to a few months ago, the Federal Reserve may be closer to stopping interest rate cuts, or at least very unwilling to commit to further cuts.

In addition to the Federal Reserve's interest rate decision, investors need to pay close attention to this week's US retail sales data, except for November. In addition, investors need to continue to pay attention to news related to the geopolitical situation.