On Wednesday (December 18th), in the morning session of the Asian market, spot gold was hovering at a low level for nearly a week, currently trading around $2645.93 per ounce. Gold prices came under slight pressure on Tuesday as the US retail sales rate in November was stronger than market expectations, strengthening the possibility of the Federal Reserve releasing hawkish signals, although there were still some bargain hunting buying to support gold prices. The Federal Reserve's interest rate meeting has begun on Tuesday, and this is the Fed's last policy meeting of the year. Analysts believe that the Fed may release a more gradual signal of interest rate cuts. The survey shows that US bond yields are expected to rise for the second consecutive month.

US retail sales growth in November exceeded expectations

As households purchase more motor vehicles and online goods, the growth rate of US retail sales in November exceeded expectations, in line with the strong potential momentum of the economy at the end of the year.

The report released by the US Department of Commerce on Tuesday did not affect expectations that the Federal Reserve will cut interest rates on Wednesday, which will be the third rate cut since the Fed began its easing policy cycle in September.

Federal Reserve officials began a two-day policy meeting on Tuesday. The strong domestic demand, coupled with the recent rebound in inflation, suggests that the Federal Reserve may pause interest rate cuts in January.

According to CME's FedWatch tool, the probability of a 25 basis point rate cut this week is 95%, but the probability of a rate cut in January is only around 16%.

The policies planned by the incoming administration of President elect Trump, including tariffs on imported goods and large-scale deportations of illegal immigrants, are also expected to make the work of the Federal Reserve more complex.

Christopher Rupkey, Chief Economist of FWDBONDS, said, "The market still expects a 25 basis point rate cut this week, but if consumers are still buying interest rate sensitive goods such as cars, rational market observers will have to question why the Federal Reserve is adding fuel to the fire as the incoming president at the end of January proposes one of the most pro growth agendas in history

The US Bureau of Statistics reported that retail sales in November increased by 0.7% month on month, while economists had previously predicted a growth of 0.5%. Specific forecasts vary, ranging from a decrease of 0.1% to a high of 1.0%. The growth rate in October was revised upwards to 0.5%. Retail sales mainly consist of goods, unadjusted for inflation. Retail sales in November increased by 3.8% year-on-year.

Economists predict that when Federal Reserve policymakers release their latest economic forecast summary on Wednesday, they will send a signal to reduce the number of interest rate cuts in 2025. The Federal Reserve's benchmark overnight interest rate range is currently between 4.50% and 4.75%, with a 5.25 percentage point increase between March 2022 and July 2023.

LPL Financial Chief Economist Jeffrey Roach said, "Unless there is substantial weakness in the labor market, investors should expect the Federal Reserve to lower interest rates next year, but not as much as initially hoped

The US dollar rose 0.1% on Monday, making gold more expensive for holders of other currencies, while the yield of US 10-year treasury bond bonds hit a four week high on Monday. The Federal Reserve is holding a meeting, and the market generally expects to announce a 25 basis point interest rate cut on Wednesday.

The latest economic forecast and dot plot from the Federal Reserve are also receiving attention, which may reshape expectations for the trajectory of interest rates in 2025 and 2026.

Therefore, the question is whether the Federal Reserve will be more hawkish or dovish than current market expectations, "said Fawad Razaqzada, a market analyst at Forex." Due to Trump's agenda, people expect the Federal Reserve to be more cautious about further interest rate cuts at this stage

The market is trying to discuss whether it's time to phase out the US dollar. The performance of the US dollar this year is incredible, "said Marvin Loh, senior global market strategist at State Street in Boston

Traders are still monitoring key US GDP and inflation data for later this week in search of further clues.

Barclays predicts that the Federal Reserve will cut interest rates by 25 basis points this month, followed by a more gradual signal of interest rate cuts

The Barclays research team has released a research report on the Federal Reserve's policies, predicting that the Federal Open Market Committee (FOMC) will cut interest rates by 25 basis points, and the target range for the federal funds rate is expected to fall to between 4.25 and 4.5%, marking the last interest rate cut before the pause and bringing rates closer to the neutral level considered by policymakers. Subsequently, it is believed that the FOMC will release a more gradual signal of interest rate cuts.

Barclays believes that the Economic Forecast Digest will raise its economic growth and inflation forecasts, lower its unemployment rate forecast, and expects to cut interest rates three times next year. The research team maintains its benchmark forecast that the FOMC will cut interest rates no more than twice next year, in March and June, each by 25 basis points. It is also expected that core personal consumption expenditure (PCE) inflation levels will rise again in the second half of next year due to increased import tariffs and stricter immigration controls.

In addition, Barclays expects the FOMC to continue cutting interest rates around mid-2026, with two cuts of 25 basis points each time, adjusting the target interest rate range to a moderately tight range of 3.25 to 3.5%, based on the assumption that the long-term neutral policy rate is around 3 to 3.25%.

Is the uncertainty of Trump's policy outlook significant, or will it affect the latest forecast of the Federal Reserve?

Since Trump won his second presidential term last month, Federal Reserve policy makers, including Chairman Powell, have stated that it is too early to include policy plans that have not yet been detailed by the elected president in their forecasts.

But meeting minutes show that eight years ago, Powell, who served as a member of the Federal Reserve Board, along with most of his colleagues, raised expectations for economic growth momentum and interest rates to reflect the expected impact of Trump's tax cuts and other policies.

Therefore, it may not be surprising if Federal Reserve policymakers raise their economic growth forecast for next year this week. When the Federal Reserve meets this week, it is expected to announce its third interest rate cut and update its forecasts for economic growth, unemployment rate, and inflation.

In September, Federal Reserve officials predicted that next year's economic growth rate would be 2%. In a survey of professional forecasters conducted by the Philadelphia Federal Reserve, the forecast for 2025 has been raised from the previous 1.9% to 2.2%.

Federal Reserve officials may also lower their forecast for next year's interest rate cuts. It can be certain that they may not be willing to shift the blame onto Trump - instead, they will point out that recent data shows strong economic growth momentum next year, which could drive economic growth, lower unemployment rates, and make them wary of inflation.

But this may still reflect a preliminary assessment of the actions that Trump will take, promising to take more measures through tax cuts, deregulation, and tariffs.

We believe in Chairman Powell and the committee's statement that monetary policy will be formulated based on actual changes in fiscal, trade, and immigration policies, rather than being formulated in advance, "wrote economists at Morgan Stanley. They said that even so, the forecasts of Federal Reserve policymakers may indicate stronger economic growth in 2024, a slowdown in inflation over the next two years, and a reduction in the frequency of interest rate cuts on the appropriate policy path

Since the last meeting in November, several Federal Reserve officials have expressed their willingness to take a more cautious pace of interest rate cuts, especially considering that the current labor market does not look as fragile and inflation is more sticky as it did when they began cutting interest rates in September.

Their latest forecast for the economic and interest rate trends over the next three years will be released in the latest quarterly forecast at the end of Wednesday's meeting.

Even without considering the uncertain impact of Trump's plan, there is ample reason to believe that policymakers will appropriately adopt a more moderate path of interest rate cuts next year as they evaluate the generally strong economic data since the last forecast.

A stronger labor market and more sticky inflation may prompt some policy makers to lower their expectations of interest rate cuts. Most analysts expect the median expectation to be three interest rate cuts next year, each by 25 basis points, consistent with current pricing in the financial market. But some analysts also believe that it is possible for the median expectation to be two interest rate cuts.

It is expected that policy makers will also estimate several further interest rate cuts in 2026, lowering the policy rate to 3.4% or 3.1%, compared to the September estimate of 2.9%.

2.9% is equivalent to the "long-term" level or stop point of the federal funds rate that policy makers have consistently recognized.

Dallas Fed President Logan believes that as the Fed's policy rate approaches its final stop point, it should slow down like a captain sailing into a port. Some analysts predict that the estimated "long-term" interest rate will rise to 3% or even higher, which will further strengthen the reasons for slowing down the pace of interest rate cuts.

Survey: Expectations for US Treasury yields rise for second consecutive month due to Federal Reserve's cautious attitude and inflation risks

According to a Reuters survey, bond strategists' forecasts of US treasury bond bond yields rose for the second consecutive month under the expectation that the Federal Reserve has limited room to cut interest rates and that inflation risks will rise in 2025.

The Federal Reserve kicked off its easing cycle with a significant 50 basis point rate cut in September, having already lowered the federal funds rate by 75 basis points and expected to further lower it by 25 basis points to 4.25% -4.50% on Wednesday of this week.

However, since the first interest rate cut, the yield of the 10-year treasury bond bond, an indicator that is inversely related to the price trend, has soared by about 70 basis points, reaching a new high of 4.50% in nearly six months last month.

The resilience of the world's largest economy and President elect Trump's policies from tariffs to tax cuts are expected to trigger inflation, suppress the Federal Reserve's easing program, and drive up yields, especially on longer-term bonds.

Although the 10-year bond yield has fallen to around 4.40%, the median forecast from a Reuters survey conducted from December 12th to 17th shows that the 10-year bond yield will slightly fall to 4.25% after one year, higher than the 4.10% forecast from last month and 50 basis points higher than the median forecast in October.

About 55% of forecasters raised their one-year forecasts for the yield of 10-year treasury bond on the basis of November.

Penn Mutual Asset Management portfolio manager Zhiwei Ren said, 'If Trump's policies focus on driving economic growth by increasing deficits, then there is more room for interest rates to rise.'.

Economists surveyed by Reuters last week currently expect to only cut interest rates three more times next year, each by 25 basis points, which is half of the forecast made earlier this year.

The rise in US Treasury yields means an increase in the opportunity cost of holding gold, which tends to suppress the price of gold.

Technical aspect

From a technical perspective, at the daily level, the KDJ dead cross and MACD red bar have all shrunk and show signs of a dead cross. Gold prices have fallen back after being blocked by resistance levels such as the middle Bollinger Bands, and have now fallen below the middle Bollinger Bands. The future trend is to further explore the support near the lower Bollinger Bands at 2601.97, and the low support on November 26th is also near this position.

Pay attention to the resistance near the middle of the Bollinger Bands at 2655.43 and the resistance near the 55 day moving average at 2668.42. If you can recover from the 55 day moving average, it will weaken the bearish signal in the future.