Without discussing the expected fermentation of interest rate cuts, gold prices fell sharply in 1995, focusing on the US CPI and Federal Reserve resolutions

In the Asian market on Monday (December 11), the US dollar index continued its intraday rebound and is now near 104.10; spot gold fell significantly, and the price of gold fell below 1995 US dollars per ounce earlier, falling about 10 US dollars in the day. "Federal Reserve Messenger" Nick Timiraos reported that Federal Reserve officials are unlikely to have a serious discussion on when to cut interest rates this week, and may not discuss it in the next few months. This news hit market expectations for the Federal Reserve to cut interest rates and put selling pressure on gold prices. Gold prices have so far tested the 1995 line for the second time in the day.

(15-minute chart of spot gold, source: Huitong Finance APP)

FXStreet analyst Eren Sengezer wrote on Monday that bulls were becoming hesitant ahead of the US CPI and Federal Reserve policy announcements this week. The short-term technical outlook shows gold is losing bullish momentum.

The Labor Department reported on Friday that non-farm payrolls added 199,000 jobs in November, beating analysts' forecasts of 180,000, and the unemployment rate fell to 3.7%. After the data was released, traders in short-term interest rate futures in the United States cut their bets on a rate cut in March, and now believe that the Federal Reserve is more likely to cut rates in May. The probability of initiating a rate cut in March was originally 60%, but it fell below 50% when the non-farm payroll came out.

The U.S. dollar index closed up 0.3% at 104 on Friday. Spot gold closed 2004.41 ounces on Friday, down 1.19%.

"Federal Reserve Messenger": This week's Federal Reserve resolution is unlikely to discuss interest rate cuts!

At a critical juncture ahead of the Fed's latest interest rate decision this week, Nick Timiraos, the Wall Street Journal's chief economics correspondent known as the "Fed's mouthpiece," reported on Sunday that Fed officials are unlikely to have a serious discussion about when to cut rates this week and may not do so for months unless the economy weakens more than expected.

So far, Timiraos writes, so good. After a series of "creepy" rate rises, inflation has fallen faster this year than many Fed officials expected two years ago. The big questions now are when and by how much the Fed can start cutting rates. The answers to these questions will have big implications for households, markets and even the US Presidential Election in 2024.

One danger, Mr. Timiraos said, is that Mr. Powell and his colleagues - accused of being too slow to respond to soaring inflation two years ago - will now wait too long to cut rates to ensure that inflation fully subsides, a mistake that could unduly depress growth and lead to a recession.

Mr. Timiraos warned that it would also be a big mistake for the Fed to cut interest rates prematurely without curbing inflation. The Fed does not want to repeat the mistakes of 1967, when it cut rates to boost flagging economic growth only to see prices soar.

Fed officials are wary of cutting rates too soon because they fear that new shocks - such as a rise in oil prices - could trigger a new surge in inflation, as happened in the 1970s.

Mr. Powell and his colleagues are expected to leave interest rates unchanged at this week's meeting, Mr. Timiraos wrote. Officials last raised the benchmark federal funds rate to a 22-year high of 5.25 to 5.5 percent in July. Interest rates affect borrowing costs across the economy, including those charged on mortgages, credit cards and business loans.

Mr. Timiraos said Fed officials were unlikely to have a serious discussion this week about when to cut interest rates, and probably not for months to come unless the economy weakens more than expected. However, they did not think rates needed to remain at current economic limits indefinitely. Officials will release their latest rate forecasts after their meeting on Wednesday, which will show that most expect a rate cut next year.

Michael Feroli, chief economist at JPMorgan Chase, did not expect Fed chairperson Jerome Powell to be involved in the rate cut discussions. "At the press conference, we think Powell will try to shift the conversation away from the timing of the first easing, and he will point out that right now the committee is just considering whether to keep policy unchanged or tighten policy," he said.

Michael Pearce, chief U.S. economist at Oxford Economics, agreed that Wednesday's press conference was slightly more hawkish, indicating that Powell and the Federal Reserve tend to keep interest rates higher for longer.

Stephen Gallagher, chief U.S. economist at Societe Generale, said the Fed's policy statement will continue to lean towards a hawkish stance, again talking about possible future tightening.

At the press conference, Mr. Powell will remind markets that the Fed may have to raise rates again if inflation picks up again, Mr. Gallagher said, stressing that talk of a rate cut was "premature".

Analysts pointed out that if Powell makes hawkish remarks this week, the dollar is expected to start a strong rally and send gold prices further down.

Gold prices are expected to react strongly to U.S. CPI and Federal Reserve dot charts

U.S. Consumer Price Index (CPI) data for November will be released on Tuesday, according to FXStreet analyst Eren Sengezer. In October, the CPI was flat from the previous month. If the data turns negative, it could weigh on the dollar in the initial reaction and provide a boost for gold. Investors will also keep a close eye on the core CPI data, which is expected to rise 0.2% for the second consecutive month. A reading of 0.4% or higher could help the dollar find demand.

On Wednesday, the Federal Reserve will announce its interest rate decision and release a revised Summary of Projections (SEP), known as a "dot plot". The September SEP shows that policymakers' forecasts suggest another 25 basis points of rate hikes this year and a 50 basis point cut in 2024. In this case, if the Fed chooses not to leave the policy rate unchanged at 5.25% -5.5%, it would be a major bullish surprise for gold. Market participants will scrutinize the "dot plot" in an attempt to work out the timing of a policy shift.

According to the CME Group's "Fed Watch" tool, the market now sees a near 60% chance that the Fed will cut rates by 25 basis points as early as March. Sengezer said that if the revised SEP shows a total of 100 basis points or more next year, U.S. yields could move lower and gold could gain bullish momentum.

On the other hand, a change in interest rate expectations for 2024 could have the opposite effect, triggering a dollar rally. Gold prices could also be influenced by Federal Reserve Chairperson Jerome Powell's final press conference of the year. Powell could dampen market expectations for a policy shift in early 2024. Still, the tone should not come as a surprise, given the Fed's reliance on data.

Sengezer pointed out that on Thursday, the European Central Bank and the Bank of England will also announce monetary policy decisions. If the European Central Bank and the Bank of England take a more cautious approach to policy shifts in 2024 than the Federal Reserve, investors may digest policy differences. In this case, EUR/USD and GBP/USD could move higher, and broad selling pressure around the dollar could support gold. Conversely, a dovish surprise from the European Central Bank and the Bank of England could boost the dollar and weigh on gold.

In terms of economic data, Standard & Poor's Global (S & P Global) will release the preliminary U.S. manufacturing purchasing managers' index for December on Friday.

Gold's technical outlook this week

Sengezer said gold is now trading slightly below its upward trajectory since early October. Meanwhile, the Relative Strength Index (RSI) on the daily chart has fallen towards 50. Both technical developments suggest bullish momentum is being lost.

On the downside, if the daily closing price of gold falls below $2,000/oz, this could attract technical sellers and open the door for gold prices to fall towards $1980/oz (38.2% Fibonacci retracement of the October-December downtrend) and $1960/oz (50-day simple moving average).

(Daily chart of spot gold)

Sengezer said that gold needs to stabilize within the ascending channel and turn $2020/oz into support in order to be bullish again. In this case, gold prices could encounter resistance at $2060/oz (the midpoint of the ascending channel) before targeting $2080/oz (the upper limit of the ascending channel).

At 14:57 Beijing time, international spot gold was quoted at $1999.16 per ounce.