As the calendar inches closer to the end of the year, the gold market finds itself at a crossroadsIn the early hours of December 19, gold prices hovered around $2588.47 per ounce, teetering at near one-month lowsThis decline over the preceding day signifies a drop of more than 2%, with prices sinking to $2583.65, marking the lowest point since November 18. The reaction followed a decision by the U.SFederal Reserve, which cut interest rates as expected but conveyed a more cautious tone about future rate decreases, prompting the dollar and Treasury yields to surge.

The release of fresh forecasts by the Fed indicated a potential for two rate cuts in the following year, each at 25 basis points, amidst overarching concerns regarding rising inflation

The cautious outlook on further monetary easing has left market participants struggling to absorb the notion of just two cuts in 2024. Independent metals trader Tai Wong commented, "Gold is struggling but holding its groundIf it can stay above $2600, the bulls will feel reassured."

On the COMEX, the front-month gold futures contract experienced a low of $2596.7 before closing slightly higher at $2604.2, a decrease of roughly 1.9% on the day.

The market for federal funds futures indicates that interest rates are expected to remain unchanged in the Fed's January meeting, with a mere 6.4% chance of a rate cut occurring in that monthHigh expectations for interest rates diminish the appeal of holding non-yielding assets such as gold, leading to increased movements in market dynamics.

Fed Chair Jerome Powell noted that any future decreases in borrowing costs will rely heavily on the progression of taming the persistent high inflation

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His statements suggest that policymakers are starting to contemplate the broader implications of economic transformation on monetary policy.

In what can only be described as a precarious economic environment, Powell emphasized the need for caution, leading to a ripple effect across Wall Street as stock markets took a notable hit in responseThe reassessment of the potential extent of interest rate cuts for the upcoming year quickly adjusted downward, reflecting investors' unease.
Following the two-day Federal Open Market Committee meeting, Powell stated: "I believe we are in a good position, but I think this marks a new phase going forward, and we will approach future rate cuts with caution."

Interestingly, expectations that the Fed would adopt a "hawkish" rate-cutting stance have somewhat dwindled

Forecasts for 2025 indicated a cut of about 100 basis points less than three months prior, adjusting market outlooks significantlyFollowing Powell's comments, market sentiment shifted to anticipate only a 25 basis point reduction in the following year.
This latest reduction by the Federal Reserve, which lowered the policy rate range by 25 basis points to 4.25%-4.50%, was described as a "more difficult" decision by Powell, with indications that a slower pace of cuts would reflect inflation levels exceeding initial forecasts for 2024.

Contrary to the overall consensus, Cleveland Fed's new member, Harker, opposed the rate cut, favoring a status quo on interest rates.

The Fed's current forecasts this week suggest only two reductions of 25 basis points each by the end of 2025, a significant reduction from earlier estimates which predicted a broader cut across that year.

Post-Fed announcement, the strength of the dollar extended, peaking at 108.27—the highest reading since November 11, 2022—before settling around 108.26, which marked a rise of approximately 1.22%. This uptick rendered gold more expensive for holders of other currencies, with the 10-year U.S

Treasury yield climbing to a new high of 4.531%, reflecting a 3.12% increase since earlier in the day.

According to Axel Merk, president and chief investment officer of Merk Hard Currency Fund, "The Fed has raised its core inflation expectations and reworked the dot plot; thus, bets on rate cuts are dissipatingI believe there will be one more cut next year, which is fewer than initially predicted, suggesting a hawkish stance favorable for the dollar."

Jack McIntyre, a global fund manager at Brandywine Global, emphasized, "The actual 25 basis point cut was the least significant aspect of this month’s FOMC meetingThe market had already priced in this outcome

The Fed did not disappointHowever, if we peer into the guidance given, this is clearly a 'hawkish' rate cutStronger growth expectations and heightened inflation forecasts are key reasons why the Fed reduced its rate cut predictions for 2025. The results from this meeting raise an intriguing question: if the market wasn’t expecting a cut today, would the Fed actually have enacted one? I suspect not.

Curiously, a dissenting voice has emerged within the FedTherefore, the central bank enters a new phase of monetary policy—a pause phaseThe longer this pause lasts, the more likely the market is to perceive that the chances of both tightening and loosening are nearly equalThis uncertainty in policy will likely lead to heightened volatility within financial markets as we approach 2025."

Market strategist Ellen Hazen from F.L

Putnam Investment Management remarked, "This is clearly a hawkish cut, evidenced importantly by the dissent from a new voting memberBut if you look at the adjustments in the economic forecast statement, they had little choiceThey revised upwards the Personal Consumption Expenditures (PCE) and core PCE inflation expectations for this year, next year, and the year beyondThey lowered unemployment rate projections and enriched GDP forecastsClearly, the economy is running hotter than previously thought, prompting them to steer towards a pause."

In addition, reports of a significant advance in ceasefire negotiations between Hamas and Israel have dampened safe-haven demand for goldAn anonymous Hamas official revealed on the evening of December 18 that talks regarding a phased release of hostages and a ceasefire deal have progressed significantly.

Traders remain vigilant this week seeking key data points such as the U.S