Why Gold Surges Past $4,235: Fed Rate Cut Signals Extended Loose Monetary Policy

Gold extends gains to the $4,235 level as markets digest the latest monetary policy shift from the world’s largest economy. The precious metal’s rally reflects a confluence of factors that are reshaping near-term price direction.

Fed’s Third Rate Cut Sends Bullish Signal for Gold

The US Federal Reserve concluded its December meeting by cutting the benchmark interest rate by 25 basis points, bringing the policy rate down to the 3.50%-3.75% range—the lowest level seen in three years. This marks the third consecutive reduction this year, reinforcing expectations of a prolonged easing cycle.

The significance of this move extends beyond the immediate cut. Fed Chair Jerome Powell emphasized during the policy announcement that officials require time to assess how the three reductions in 2024 are transmitting through the broader economy. Powell also flagged that the central bank will scrutinize incoming economic data closely before the January gathering, leaving the door open for a more cautious stance going forward.

Market expectations have already shifted in response. The CME FedWatch tool now shows traders assigning approximately 78% odds to the Fed maintaining rates steady at the next meeting—up notably from the 70% probability recorded before yesterday’s announcement. This shift underscores market confidence in a pause phase.

The Gold-Interest Rate Nexus

Lower policy rates directly support gold price dynamics by reducing the opportunity cost of holding non-yielding assets. When central banks cut rates, bonds and cash deposits become less attractive on a relative basis, channeling investor capital toward alternative stores of value. Gold, as a traditional hedge against monetary expansion, benefits from this reallocation.

The current backdrop—with three cuts already delivered and only one anticipated for 2025 based on Fed guidance—creates a supportive environment for the precious metal. Market participants are closely monitoring Thursday’s US Initial Jobless Claims release, as employment data will influence expectations around future policy adjustments.

Geopolitical Uncertainty: A Double-Edged Sword

US President Donald Trump has set a Christmas deadline for Ukrainian President Volodymyr Zelensky to accept a peace proposal to end the ongoing conflict with Russia. Zelensky indicated he is developing a modified peace framework to present to Washington, suggesting potential diplomatic momentum.

While peace agreements typically weigh on safe-haven assets like gold in the short term—as reduced geopolitical risk diminishes demand for protective holdings—the current uncertainty around Ukraine negotiations adds an underlying supportive backdrop for risk-averse positioning. Any setback in negotiations could reinvigorate safe-haven flows into gold and other traditional hedges.

Market Outlook

The intersection of accommodative monetary policy, subdued interest rates, and lingering geopolitical tensions creates a multifaceted environment for gold price momentum. Traders maintaining exposure to the precious metal should remain alert to both Fed communication around 2025 policy and developments regarding Ukraine peace discussions.