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The gold market is being sold off heavily on Thursday. Spot gold is down some $30 per ounce and has now fallen back below the key $1800 level. The yellow metal made a solid upside run in recent days, but if the bulls are unable to hold the $1800 level, that run may have been for nothing. If the bears produce a close below that level today, there could be more selling pressure in the days ahead, possibly even leading the market back down to the recent breakout point of $1700. That would be a major victory for the bears while putting a very serious dent in the bulls’ hopes.

The Fed caught markets a bit off-guard this week with its commentary following the decision to raise rates by another 50 basis points. Although the central bank did not hike by 75 points as it has done in several meetings prior to this week, it did suggest that rates will need to be higher for longer. The higher for longer theme is what investors appear to have taken away from the meeting and that may weigh on both stocks and gold as the year comes to an end in just a couple of weeks. While markets could simmer down a bit as the holidays rapidly approach, how they will begin 2023 is another matter entirely. Heading into the FOMC meeting this week, it was widely expected that the Fed would not only take its foot off the gas pedal but that it would also signal a much slower pace of hikes into next year and possibly even a reversal in its rate hiking campaign.

The Fed did not deliver that message this week, however, and now has investors a bit spooked. Following the U.S. Fed yesterday, the European Central Bank earlier today also took a more hawkish stance than anticipated. The ECN raised interest rates by a half point, a smaller increase than previous hikes. The central bank did also suggest, however, that more rate hikes are necessary and that the central bank still has a lot of work to do to get inflation under control. The ECB joined the U.S. Federal Reserve and the Bank of England in its half point rate hike this week, slowing the pace of rate increases from the previous 75 point hikes done by all three central banks.

With these central banks all having their final policy meetings for 2022 this week, the markets will need to take a wait and see approach as the new year gets going. Recent inflation data has shown some weakness in price pressures compared to market expectations. Should that trend continue, the Fed and other central banks may not see fit to keep raising rates as much as anticipated. Of course, time and the data will tell. Hopes for the central banks easing on their rate hiking paths may lead to some heightened volatility in the year ahead. The notion of higher rates for longer may keep stocks and gold under some pressure until the Fed signals it will begin cutting rates again. Rates are likely to reach 5.1% in 2023, but are expected to decline to 3.1% by 2025.