On Monday (December 16th), spot gold traded at $2653.24 per ounce, with a slight increase of 0.17% during the day, and the overall trend is still within the consolidation range since last week. Market sentiment is currently cautious, with investors generally maintaining a wait-and-see attitude ahead of the upcoming Federal Reserve rate decision this week. In addition, the signals released by recent economic data in the United States, the impact of geopolitical situations, and changes in US bond yields have collectively formed the complex pattern of gold prices at present.

Market background and market overview

The US CPI and PPI data released last week indicate that although the Federal Reserve has made some progress in controlling inflation, there is still a distance to go from the 2% target. This has prompted the market to gradually accept the possibility that the Federal Reserve will slow down the pace of interest rate cuts next year, suppressing the upward potential of non yield assets such as gold. However, the support of geopolitical uncertainty and risk aversion has limited the extent of the decline in gold prices. The current gold price has entered a consolidation phase after hitting a one week low.

At the same time, the slight drop in the yield of US treasury bond bonds has suppressed the upward potential of the US dollar. In addition, due to market concerns about the policies of US President elect Donald Trump, some investors have chosen to increase their holdings of gold as a hedge against risk. In addition, the escalation of the situation in the Middle East provides further safe haven support for gold.

Macro and policy impacts

The focus of this week's market is undoubtedly the Federal Reserve's interest rate decision on Wednesday. Based on current market expectations, the CME FedWatch tool shows that traders generally believe there is a 93% probability of the Federal Reserve cutting interest rates by 25 basis points. But more importantly, the Federal Reserve's policy statement and Chairman Powell's speech may reveal a more crucial policy path for next year. Currently, the market believes that the Federal Reserve may adopt a more cautious attitude, which suppresses the rebound of gold due to the expectation of 'not being dovish'.

In addition, the renewed escalation of the situation in the Middle East supports the safe haven demand for gold. The recent news of Israel's increased expansion plan in the Golan Heights has sparked regional tensions, with military conflicts in Syria and ongoing fighting in Gaza further exacerbating risk aversion. Meanwhile, the warning issued by the NATO Secretary General regarding the situation between Russia and Ukraine has also made investors highly vigilant about geopolitical risks, all of which have provided bottom support for gold prices.

Technical analysis

Technically, the price of gold is currently constrained by resistance levels in the $2665-2666/ounce range. If it can break through this level in the short term, it is expected to further explore the important psychological barrier of $2677/ounce or even $2700/ounce. If the gold price can effectively stabilize above $2700, it may further challenge this month's high of $2726 per ounce, opening up new upward space for bulls.

On the other hand, the key support below is located in the range of $2644-2643 per ounce, which shows strong buying support during the Asian session. If the gold price falls within this region, it may further drop to $2625 per ounce, and the key psychological support of the monthly low of $2614 per ounce and $2600 will be the next focus of attention. Once it falls below $2600, it will significantly enhance the bearish sentiment in the market and trigger a deeper pullback.

Recent driving factors

Bond market and US dollar: Although the 10-year US Treasury yield hit a three week high last Friday, the recent decline has limited further appreciation of the US dollar, providing some support for gold prices. However, the market's reassessment of the Federal Reserve's policy outlook could reverse this situation at any time.

Global PMI data: The upcoming release of PMI data for major economies worldwide on Monday will affect market risk sentiment. If economic activity data is weak, it may exacerbate risk aversion and be favorable for gold.

Future prospects

Overall, spot gold is expected to maintain a wide range of fluctuations in the short term, with the market's main focus on this week's Federal Reserve interest rate decision and policy statement. If the Federal Reserve shows a more cautious attitude towards interest rate cuts, gold may face further downward pressure; But if Powell's speech or policy statement releases more signals of easing, it may push gold prices up above the $2700 mark.

In addition, changes in the geopolitical situation remain an important risk factor in the short term. If the situation in the Middle East or Russia Ukraine deteriorates further, the demand for gold as a safe haven asset may rapidly rise. Traders need to closely monitor the development of these events and search for market clues near important support and resistance levels.

The current market sentiment tends to be wait-and-see. It is recommended to pay attention to the market reaction after the Federal Reserve's decision on Wednesday, which will provide clearer guidance for future trends.