Will tonight's PCE bring good news? Can the PCE data provide some comfort for the bulls?

At 9:30 PM Beijing time on Friday, the United States will release the Federal Reserve's preferred inflation data - the November PCE price index. Although the path to achieving the Federal Reserve's 2% inflation target remains bumpy, overall inflation may continue to cool.

Previously, the Federal Reserve announced a 25 basis point rate cut but halved its expectations for rate cuts next year. Analysts expect that as inflation progress slows and the labor market remains balanced, the pace of rate cuts by the Federal Reserve will slow down in 2025.

The market expects that the overall PCE price index for November will rise by 0.2% month-on-month and 2.5% year-on-year, consistent with the previous value; they also expect that the core PCE price index, excluding volatile food and energy prices, will rise by 0.2% month-on-month, slowing from 0.3% last month, and increase by 2.9% year-on-year, up from 2.8% last month.

"Month-on-month, the overall inflation trend will decline," said Lydia Boussour, a senior economist at EY. She expects the overall PCE month-on-month growth rate to be about 0.2%, and the core PCE month-on-month growth rate to be about 0.1%.

Although the overall PCE inflation rate is expected to rise from 2.3% in October to 2.5% in November, Boussour stated that part of the increase is related to weaker inflation data from a year ago: "You will encounter those less favorable base effects. This will push up the year-on-year inflation rate."

Overall, Boussour believes that the fundamental drivers of inflation - including the labor market, consumer spending, domestic demand, and changes in housing prices - are still trending moderately in the short term. "All these factors indicate that even though the road is bumpy, we are still in a trend of slowing inflation," she said.

Most of the raw data in the PCE report is released before the report is published, meaning economists already have a good understanding of the data to be released on Friday. The PCE data is also the Federal Reserve's preferred inflation indicator, rather than the CPI report released earlier this month.

Based on this data, Boussour expects Friday's PCE price index to show a decline in housing prices, with the increase in portfolio management services being less than in October. She mentioned that commodity prices may slightly decrease and added that she expects gasoline prices will not be a major anti-inflation factor this time, which has driven the overall inflation rate down for most of 2024.

Boussour added that overall, "this report will be somewhat more encouraging than the slightly sticky CPI data."

While the drivers of slowing inflation are still at play, analysts say that the outlook for Trump's policies in 2025 may delay this progress. "We do see that higher tariffs and deregulation may bring upward risks to the inflation outlook," Boussour said. She also pointed to the possibility of strong economic growth and changes in tax policy, all of which could exacerbate ongoing price pressures. "Before the election, inflation may be higher than we previously expected, and this possibility is significant."

Will the Federal Reserve cut rates in January next year?

Bank of America economists wrote earlier this month, "The outlook for the Federal Reserve remains unclear after December, as recent progress on inflation has stalled, and there are upside risks to inflation in the future."

Many analysts expect the Federal Reserve to pause interest rate cuts at its January meeting next year. The bond futures market agrees; according to data from the Chicago Mercantile Exchange's FedWatch tool, traders expect an 88% chance that the Federal Reserve will keep rates unchanged in January.

Additionally, the annual changes in the composition of the Federal Open Market Committee (FOMC) voting members next year may slightly increase resistance to further rate cuts. Compared to the outgoing voting members, the incoming members are more hawkish. TD Securities analyst Oscar Munoz stated, "This opens the door for more dissenting votes next year."

At the December FOMC meeting, four of the 19 decision-makers at the Federal Reserve wrote down forecasts indicating that this rate cut was inappropriate, with Cleveland Fed President Loretta Mester casting a dissenting vote. Mester will exit the FOMC next year, replaced by Chicago Fed President Austan Goolsbee, who believes that the policy rate needs to be significantly lowered next year, clearly more dovish than Mester.

However, the other two new voting members—St. Louis Fed President Jim Bullard and Kansas City Fed President Esther George—will make the 2025 voting members' stance more hawkish. They will replace the perceived centrists Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly.

TD Securities analysts speculate that Bullard is one of the four policymakers who submitted forecasts opposing this rate cut, with George possibly being another, both of whom have hinted at some hesitation regarding further rate cuts. The fourth could be Fed Governor Michelle Bowman, who opposed a 50 basis point cut in September but may have shifted to support this week's cut during the two-day meeting.

The quarterly economic projections summary from the Federal Open Market Committee (FOMC) shows that officials estimate the median federal funds target rate at 3.75%-4.00% by the end of 2025. This suggests that the Federal Reserve may only cut rates by 50 basis points next year, lower than expectations in September.

At the press conference, Federal Reserve Chairman Jerome Powell stated that this change is consistent with a more robust inflation forecast.

Has the short interest in gold been ignited?

On Friday, gold prices maintained their buying tone amid widespread risk aversion. Against the backdrop of ongoing geopolitical risks and concerns over trade wars, the threat of a U.S. government shutdown has driven some safe-haven funds into gold. Global risk aversion has led to a moderate decline in U.S. Treasury yields, which has limited the recent rise of the dollar to a two-year high and provided additional support for gold.

Nevertheless, the hawkish signals from the Federal Reserve indicating a slowdown in rate cuts in 2025 still favor U.S. Treasury yields and benefit dollar bulls. This, in turn, has failed to help the non-yielding gold prices regain momentum above $2,600 during the day. Traders are now focusing on the upcoming PCE data, which may influence dollar price dynamics and affect gold FXStreet analysts point out that, from a technical perspective, the break of the 100-day simple moving average (SMA) by gold after the FOMC meeting is seen as a new trigger for bearish traders to enter. Although indicators suggest that the path of least resistance for gold prices is upward, any rise may continue to face resistance around the $2626 level. If gold can break through here, some follow-up buying may trigger a short-covering rebound, pushing gold up to the next relevant resistance level, which is near the $2652-$2655 supply area. If this level is breached, bulls will regain control and pave the way for further upward movement.

On the other hand, the low of about $2583 reached by gold on Thursday may provide some support; if this level is broken, gold prices could drop to the $2560 area, followed by the November low in the $2537-$2536 area. If this low is also lost, the downtrend may extend further to the psychological level of $2500, followed by the very important 200-day SMA support level, currently around $2472