Gold Retreats Below $4,200 as Fed's Hawkish Rate Cut Scenario Gains Ground

XAU/USD trading near $4,195 as mixed signals cloud the outlook. Gold has pulled back to trade near $4,195 during Tuesday’s early Asian trading, reflecting growing uncertainty around the upcoming Federal Reserve decision. The precious metal’s downside pressure stems from a critical shift in market expectations: traders are now pricing in a 90% probability of a 25 basis points rate cut at December’s FOMC meeting, a significant jump from November’s 66% probability reading according to CME FedWatch data.

However, the key concern isn’t whether a cut will happen—it’s how the Fed will frame it. A “hawkish rate cut,” where the central bank lowers rates while signaling a more restrictive future stance, could paradoxically support the US Dollar and cap upside in gold prices. The timing matters because the Fed’s post-decision press conference and the Summary of Economic Projections (dot-plot) will reveal policymakers’ true intentions.

Employment Data Could Reset Rate Cut Expectations

Before the Fed takes action on Wednesday, two critical labor market reports land on Tuesday: the ADP Employment Change four-week average and JOLTS Job Openings data for September and October. A disappointing print could accelerate rate-cut bets and provide a temporary floor for gold prices. Remember, lower US interest rates reduce the opportunity cost of holding non-yielding assets like gold, creating natural support for the yellow metal during easing cycles.

Safe-Haven Demand Provides Downside Protection

Beyond Fed mechanics, geopolitical tension remains a wild card. Escalating friction between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy is reigniting safe-haven demand for traditional defensive assets. Gold, valued as insurance against uncertainty, could find buyers if international tensions intensify further.

The coming 48 hours will be decisive: traders must balance hawkish policy divergence against weaker-than-expected employment data and rising geopolitical risks—all while monitoring XAU/USD’s pivotal $4,200 technical level.