XAU/USD Climbs Above $4,200 After Fed's Third Consecutive Rate Cut

Gold continues its upward trajectory, trading near $4,235 during Asian hours on Thursday following the Federal Reserve’s decision to reduce borrowing costs. The precious metal’s strength stems from the central bank’s latest monetary policy adjustment and shifting market expectations heading into 2025.

Fed Rate Decision Reinforces Gold’s Appeal

The US Federal Reserve lowered its benchmark interest rate by 25 basis points during Wednesday’s policy meeting, bringing the federal funds rate to a range of 3.50% to 3.75% — marking the lowest level since 2021. This represents the Fed’s third consecutive rate cut this year, signaling a shift toward monetary accommodation.

Fed Chair Jerome Powell emphasized during the post-meeting press conference that policymakers require additional time to assess how the recent rate reductions will influence economic activity. He noted that the central bank will scrutinize economic data closely before the January policy meeting, with particular attention to employment trends and inflation dynamics.

Market Positioning Shifts Toward Rate Pause

Traders are increasingly confident that the Fed will maintain rates at their current level when the central bank convenes next month. The CME FedWatch tool indicates a 78% probability of a rate hold in January, up from 70% prior to this week’s announcement. This shift suggests markets are pricing in a pause in the Fed’s cutting cycle.

Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, providing fundamental support for the precious metal. As real yields compress further, gold becomes a more attractive store of value for investors seeking inflation protection.

Geopolitical Tensions Add Safe-Haven Bid

Complicating the outlook, US President Donald Trump has pressured Ukrainian President Volodymyr Zelensky to finalize peace negotiations with Russia by Christmas. Zelensky signaled he is preparing a revised proposal to present to US officials, indicating ongoing diplomatic engagement.

Progress toward resolving the Ukraine conflict could potentially weigh on gold in the near term, as investors might reduce allocations to traditional safe-haven assets amid improving geopolitical sentiment. However, any derailment in peace talks could reignite demand for precious metals as risk protection.

Data Watch and Trading Outlook

Investors are monitoring Thursday’s US Initial Jobless Claims data for insights into labor market health. Softer employment data could reinforce expectations for prolonged Fed accommodative policy, further supporting gold’s current strength above $4,200.

The gold market remains sensitive to interest rate expectations and geopolitical developments, with traders maintaining positions ahead of key economic releases and policy communications.