Gold prices still pressured as Fed Signals Fewer Rate Cuts

The financial markets are entering a period of reduced trading activity in the coming two weeks as investors observe the holiday season and the approach of the New Year. During this time, market participants will continue to assess the Federal Reserve’s adjustments to monetary policy as announced at the final FOMC meeting of the year. Concurrently, investors are beginning to incorporate the transition to a new presidential administration into their market outlook.
After a sharp $63 decline following the conclusion of Wednesday’s FOMC meeting, gold prices appeared to find support on Thursday and Friday of last week. However, this price recovery failed to sustain momentum into the first trading day of the shortened holiday week, with gold trading modestly lower. In the last North American trading session before Christmas holidays, gold futures for the most active February 2025 contract decreased by $14.00, or 0.54%, settling at $2626.50. Gold Index (XAU/USD) was last seen at $2611.97 on Tuesday

Market sentiment remains focused on the outcomes of last week’s final FOMC meeting, which included the publication of the latest summary of economic projections (SEP) containing interest rate forecasts through 2027. A key component of the SEP is the “dot plot,” released quarterly during alternating FOMC meetings, providing an anonymous summary of the interest rate expectations of the 19 Federal Reserve committee members.

The latest dot plot marked a substantial deviation from September’s projections, indicating that the Federal Reserve intends to reduce the number of anticipated interest rate cuts in the coming year from four to just three quarter-point reductions. This more hawkish stance surprised many traders and investors, despite Chairman Powell’s prior indications of a potential policy shift in speeches preceding the pre-meeting blackout period.

Market participants are increasingly considering the broader implications for financial markets as the incoming presidential administration prepares to assume office. The combination of the Fed’s revised monetary policy and the upcoming presidential transition has the potential to significantly reshape the financial landscape in the coming year, potentially triggering substantial market reactions across various sectors.