Powell's speech causes gold to surge by $20—how should we view this market move?

On December 10th, the Federal Reserve cut interest rates by 25 basis points as expected by the market, and Chairman Powell’s cautious language at the press conference directly ignited a rally in spot gold. At the close of the day, gold surged sharply by $20.20 to $4,228.47 per ounce, marking an impressive performance in this round of gains.

Dual Impact of the US Dollar and Real Bond Yields

Powell emphasized the risks in the labor market after the meeting, downplaying concerns about inflation. This stance was more dovish than market expectations, directly impacting the dollar’s trend. The US Dollar Index(DXY), which tracks the dollar against six major currencies, fell 0.6% to 98.65, the largest single-day decline since September 16.

Meanwhile, US Treasury yields also fell sharply. The 10-year benchmark Treasury yield dropped 3.5 basis points to 4.155%, with real yields in the US decreasing by 3.5 basis points to 1.895%. This provided a clear bullish support for gold—when real yields decline, non-yielding precious metals become more attractive, explaining why gold was able to rise quickly after the rate cut.

Federal Funds Rate and Future Policy Signals

The Federal Open Market Committee(FOMC) voted to lower the target range for the federal funds rate to 3.50%-3.75%, despite three dissenting votes, and the decision was smoothly passed. The FOMC emphasized in its statement that the risks to employment have shown a downward trend, and economic outlooks still contain high uncertainty.

More notably, the “dot plot” in the FOMC’s Summary of Economic Projections indicates that most members suggest the federal funds rate will be around 3.4% next year—implying the possibility of further rate cuts in 2024. For 2028 and beyond, FOMC officials see the neutral rate around 3%. This long-term easing expectation lays the foundation for gold’s upward movement.

Powell’s New Remarks on the Labor Market

At the press conference, Powell adjusted his assessment of employment data. He pointed out that, after adjustments for overestimation, employment growth since April may have turned slightly negative, and the labor market is “gradually cooling.” Compared to his previous optimistic stance, this statement clearly shifted to a more cautious tone.

Powell emphasized that the Fed has already cut policy rates by 75 basis points this year and is “well-positioned” to “wait and see.” He refused to disclose whether there will be further rate cuts in the short term, but the market interprets this cautious stance as leaving room for additional policy adjustments.

How Are Traders Viewing This Rally?

Independent metals traders noted that gold traders responded positively to the day’s outcome. After profit-taking, gold still managed to reach intraday highs, indicating that buying momentum remains strong. The sharp decline in the dollar further reinforced the upward momentum of gold.

Some strategists commented that Powell successfully pushed for this round of rate cuts amid dissenting voices on the committee, and major financial markets strengthened across the board during his press conference, reaffirming gold’s role as a risk hedge.

Technical Outlook and Trading Recommendations

From a technical perspective, the Relative Strength Index(RSI) for gold still shows bullish momentum, with an upward trend likely to continue. Analysts expect gold to initially challenge the $4,300 per ounce level; if successfully broken, the next target will be the historical high of $4,381 per ounce.

On the downside, if gold falls below the key level of $4,200 per ounce, recent supports are sequentially at the 20-day simple moving average(SMA) near $4,153, the 50-day SMA around $4,090, and the round number of $4,000 per ounce.

For traders, gold is currently in a favorable environment of easing policy expectations and declining real yields. Whether for hedging risks or seeking appreciation, gold’s attractiveness relative to other assets is increasing—this explains why the market continues to respond positively to gold even when the Fed cuts rates as expected.