As the Federal Reserve rate cuts set to expire in February 2025 are under pressure, defying a surge in expectations for another rate cut next week, the spotlight is shifting to incoming President Donald Trump’s expected expansionary and inflationary policies. This could shape the long-term trajectory of interest rates.
Fed’s Rate Path and Trump’s Economic Influence
After slashing rates by 75 basis points in 2024, the Fed is expected to ease at a slower pace in 2025. However, Trump’s administration is projected to maintain a hawkish stance in the long run, keeping rates elevated. This could have a significant impact on gold prices, as higher rates typically weigh on gold by increasing the opportunity cost of holding non-yielding assets.
Despite gold hitting record highs earlier this year amid aggressive Fed cuts, its momentum has waned as markets adjust to Trump’s anticipated fiscal policies. The current uncertainty surrounding U.S. inflation, along with conflicting signals about rate policy and economic growth, has led to a market grappling with potential outcomes.
Technical Analysis: Key Levels to Watch
Gold futures have shown a steep decline recently, with selling pressure remaining elevated. The formation of an exhaustive candle adds to the bearish sentiment in the market. On the daily chart, gold futures are attempting to hold above the 50-day moving average at $2,701. A breakdown below this level could lead to a deeper slide towards the next support at the 20 DMA, currently at $2,673.
Short-sellers might find a temporary bounce driven by expectations of next week’s Fed rate cut as an opportunity, although any upside seems capped at the significant resistance level of $2,742. The 4-hour chart suggests that immediate support at $2,701 is critical, with a potential sharp decline if prices breach the 200 DMA at $2,684.
Gold’s recent performance reflects growing unease over the interplay between Fed policy and Trump’s economic agenda. Traders should approach gold with caution as market conditions remain volatile. While a rate cut next week could spark short-lived optimism, the broader outlook points to limited upside and increasing downside risks.
Disclaimer: This analysis is based on technical observations and is not a recommendation to trade. Readers should make investment decisions at their own risk. The author does not hold any positions in gold.