The Federal Reserve initiates easing policy, gold and silver lead gains, US dollar under pressure

Precious metals have experienced a significant rally, driven by the Federal Reserve’s policy decision on December 10. On that day, Eastern Time, the Federal Reserve announced a reduction of the interest rate range to 3.50%-3.75%, a single cut of 25 basis points. More importantly, the Fed also announced that starting December 12, it will purchase $40 billion worth of short-term government bonds, maintaining high levels of bond purchases in the coming months. This move is widely interpreted by the market as a signal of quantitative easing (QE). Fed Chair Jerome Powell’s tone in his speech was relatively moderate, not as hawkish as expected, further boosting market confidence.

Driven by this news, the US dollar index immediately fell sharply by over 0.6%, and as of December 11, it continued to weaken to 98.53, hitting a new low in over a month. In contrast, gold and silver performed remarkably well, becoming star assets in the market.

Expectations of rate cuts next year cool down, the dollar still faces long-term pressure

The latest Federal Reserve dot plot released a cautious signal. According to forecasts, the median interest rate by the end of 2026 is expected to remain at 3.4%, implying that the Fed may only cut interest rates once by 25 basis points next year, far below the market’s previous expectation of two rate cuts. Nevertheless, from a broader macro perspective, the outlook for the dollar remains under pressure.

Macro strategist Edward Harrison pointed out that as the Fed’s policy diverges from other central banks globally, especially with other countries adopting more hawkish stances, the dollar’s weakness should be explained by bond yields and cross-country interest rate differentials. In other words, when the US interest rate advantage diminishes, the downward pressure on the dollar will persist.

Gold bull market still has room to run, central banks are key drivers

Regarding the outlook for precious metals, market professionals are generally optimistic. Charu Chanana, Chief Investment Strategist at Saxo Bank, believes multiple factors support the upward potential of gold. First, the US fiscal deficit continues to widen, making it difficult to ease long-term interest rate pressures; second, global geopolitical risks are emerging frequently, boosting safe-haven demand and pushing gold prices higher; third, the de-dollarization process continues to advance, with central banks around the world actively purchasing gold. These factors combined suggest that the current gold bull market is far from over.

Central banks’ emphasis on gold reserves continues to rise. Looking at the global gold reserve rankings, major economies are steadily or increasingly increasing their gold holdings, reflecting a reassessment of gold’s value as a strategic reserve asset amid diverging monetary policies. This allocation trend further strengthens the demand foundation for gold, providing structural support for gold prices.

Under the combined effects of dollar depreciation, central bank accumulation, and rising geopolitical risks, the future trends of gold and silver warrant ongoing attention.