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Gold (XAU) Price Forecast: Rally or Pullback? Fed’s Rate Cut Outlook Holds the Key

By:
James Hyerczyk
Published: Dec 14, 2024, 10:17 GMT+00:00

Key Points:

  • Markets price in a 25-basis-point Fed rate cut, but Powell's 2025 guidance could make or break gold's momentum.
  • PCE inflation data may strengthen or weaken the case for Fed easing, shaping gold’s near-term price outlook.
  • Gold gains 0.58% this week as Fed rate cut expectations boost safe-haven demand and central bank buying grows.
  • China’s central bank resumed gold buying in November, adding long-term bullish support for the precious metal.
  • Geopolitical risks and a cautious Fed tone could lead to heightened volatility in gold markets next week.
Gold Price Forecast

In this article:

Gold Climbs on Easing Expectations and Central Bank Demand

Weekly Gold (XAU/USD)

Gold prices closed the week higher at $2,648.68, reflecting a 0.58% weekly gain. The precious metal’s performance was buoyed by increasing confidence in a Federal Reserve rate cut at next week’s meeting, with markets pricing in a near-certain 25-basis-point reduction. Robust central bank purchases, led by China, also provided support, while geopolitical tensions added to gold’s safe-haven appeal​​​.

Fed’s December Meeting: Rate Cut a Given, but 2025 Projections Loom Large

While a December rate cut is all but guaranteed, traders are laser-focused on the Federal Reserve’s guidance for 2025. Recent economic data, including November’s core inflation rise of 0.3%, indicates progress in disinflation. However, inflation remains above the Fed’s 2% target, and the labor market has shown unexpected resilience, factors that could temper the Fed’s appetite for aggressive monetary easing next year​​​.

Chair Jerome Powell’s post-meeting remarks and the updated economic projections will be critical. If the Fed signals only a modest number of rate cuts in 2025, gold’s appeal could face headwinds due to the higher opportunity cost of holding the non-yielding asset. Conversely, indications of a dovish stance, with multiple cuts forecasted, could reignite bullish momentum.

Inflation and PCE Data in Focus

The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, will be released two days after the meeting and could validate or challenge the central bank’s projections. A soft PCE print would strengthen the case for continued monetary easing, bolstering gold. However, stickier-than-expected inflation could prompt a cautious tone from Powell, potentially limiting rate cuts and dampening gold’s short-term prospects​​.

Central Banks and Geopolitics Provide Tailwinds

China’s renewed gold purchases in November have underscored strong central bank demand, adding a long-term bullish factor. Meanwhile, geopolitical risks, including tensions in Gaza, continue to enhance gold’s safe-haven allure. These factors provide critical support even as gold traders navigate potential headwinds from a strong U.S. dollar and elevated Treasury yields​​​.

Market Forecast: Fed to Dictate Next Moves

Next week’s Fed meeting will be pivotal. A dovish tone with an emphasis on multiple 2025 rate cuts could fuel gold’s upside potential, while a more cautious stance may cap gains. Long-term, gold remains well-positioned for sustained strength, supported by central bank demand and easing monetary policies. Traders should prepare for heightened volatility as markets digest the Fed’s projections and key inflation data.

Technically, I’ll maintain a bullish stance if the price sustains above $2,663.51, and shift bearish on confirmed trading activity below $2,631.04.

More Information in our Economic Calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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