Gold Struggles as Fed Cuts Rates: Market Shifts and Technical Insights

Gold prices lost their shine due to a strong U.S. dollar, hitting a low of $2,633 at the time of writing and currently trading around $2,639.

Federal Reserve's Rate Cut and Economic Outlook
The Federal Reserve recently cut its benchmark interest rate by 25 basis points, bringing it to a range of 4.25% to 4.5%. This is the third rate cut in 2024, totaling a 1 percentage point reduction since September. The Fed now plans to make only two more rate cuts by the end of 2025, down from four, due to rising inflation expectations. Although inflation has cooled slightly, it remains above the Fed's target of 2%, leading to a cautious approach in further rate changes. The decision was not unanimous, as Cleveland Fed President Beth Hammack preferred to pause cuts. The Fed's positive outlook includes steady growth and low unemployment, but it faces challenges with ongoing inflation. Overall, while rate cuts are happening, a slow and careful approach is expected moving forward.

Treasury Yields Rise After Fed Rate Cut
After the Federal Reserve cut interest rates by 25 basis points, the yield on the 10-year U.S. Treasury note rose significantly to about 4.54% on December 19, 2024. This increase of 13 basis points marks the largest weekly gain in 14 months. Strong retail sales data for November contributed to the rise, indicating consumer spending is resilient despite tighter monetary policy. Investors are now expecting fewer rate cuts by the Fed in 2025 and a more cautious approach due to ongoing inflation pressures. Overall, the rise in Treasury yields suggests tighter financial conditions and impacts various borrowing costs in the economy.

Market Expectations for Future Rate Decisions
According to the CME FedWatch Tool, the probability of a rate pause by the Federal Reserve in January has increased to 91.40% from 81.60% a day ago, signaling changing market expectations.

Technical Analysis of Gold Prices
From a technical standpoint, gold prices are currently below both short-term and long-term moving averages, indicating a bearish trend. Immediate support is at $2,570 with potential declines to $2,559, $2,536, and $2,500. Resistance is set at $2,630; breaking this level could lead to prices rising towards 2,660/2,660/2,685/$2,700/$2,730, $2,750, $2,775, and $2,800.

Trading Strategy Recommendation
A suggested trading strategy is to buy on dips between $2,600, maintain a stop-loss at $2,570, and aim for a target price of $2,725.