Massive selling puts world gold prices under pressure

The Fed delivered a 25 basis point rate cut as expected, but the real surprise came in its latest Summary of Economic Projections (SEP).

This document includes an updated chart, revealing adjusted interest rate projections from 2024 to 2027. The chart is published quarterly during alternating FOMC meetings, providing anonymous forecasts from the 19 members of the Fed Committee on future federal funds rates.

The chart released yesterday shows a significant change from the September forecast. Most notably, the Fed is now expected to cut interest rates next year from four to just one, a 25-point cut. This is significantly more hawkish than the market had expected, although Fed Chairman Jerome Powell had hinted at the policy change in several speeches before the pre-meeting “news pause.”

The announcement sent shockwaves through U.S. financial markets. Stocks plunged, and gold prices fell more than $60 an ounce. The most-traded February gold contract, which opened yesterday at $2,663.30 an ounce, closed at $2,599 an ounce.

In related developments, President-elect Donald Trump announced a breakthrough in government budget and debt ceiling negotiations, just a day before a government shutdown was threatened. The proposed bill would extend government funding by three months and allow additional borrowing through January 30, 2027. Mr. Trump also called on Congress to consider eliminating or raising the debt ceiling altogether.

But the bill’s passage remains uncertain, requiring support from both Democrats and Republicans in Congress. A vote could come as early as tonight. A particularly contentious point in the proposal is Mr. Trump’s provision to suspend the nation’s debt limit from Jan. 1 next year until Jan. 30, 2027 — a measure that is seen as difficult to enforce.