Gold steady above $4,200 amid Fed rate cut anticipation

LONDON (December 9) Gold (XAU/USD) holds its footing on Tuesday, extending the sideways pattern that has dominated trade for a little over a week as investors stay on the sidelines ahead of the Federal Reserve’s (Fed) interest rate decision on Wednesday.

At the time of writing, the XAU/USD is trading around $4,205 after briefly dipping toward $4,170 earlier in the European trading session.

The two-day Federal Open Market Committee (FOMC) meeting begins later on Tuesday, with traders widely anticipating another rate cut following September and October’s back-to-back “risk-management” reductions in response to signs of cooling in the labour market.

Market pricing via the CME FedWatch Tool points to almost a 90% likelihood of a 25 basis point (bps) rate cut, which would lower the Federal Funds Rate to the 3.50%-3.75% range.

The dovish Fed expectation is keeping the US Dollar (USD) on the back foot and bullion broadly supported. However, with the rate cut almost fully priced in, investors will closely watch the forward guidance as speculation of a “hawkish cut” grows, underscoring uncertainty over the monetary policy path heading into 2026.

Market movers: Fed’s next move under scrutiny amid mixed signals

• The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is consolidating losses around 99.00 after staging a modest recovery on Monday.
• Even with a cut almost fully priced in, policy uncertainty remains elevated. Fed Chair Jerome Powell struck a notably cautious tone at the October post-meeting press conference, stressing that “a further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.” Powell also noted a “growing chorus” within the Committee suggesting it may be better to wait before making another move.
• There is also a notable division within the Committee, with some officials emphasizing lingering inflation risks while others are concerned about the gradual cooling in the labour market. The latest Personal Consumption Expenditures (PCE) data and mixed labour indicators are adding to the uncertainty, reinforcing the view that the Fed may opt for a more measured approach to additional monetary policy easing as disinflation progress slows.
• The US economic docket features the ADP Employment Change 4-week average along with the JOLTS Job Openings data for September and October, which will offer fresh insight into labour-market conditions ahead of the Fed decision.
• Beyond monetary policy, geopolitical risks also remain elevated, with the lack of meaningful progress in the Russia-Ukraine peace negotiations continuing to lend support to Gold. After meeting European leaders in London on Monday, Ukrainian President Volodymyr Zelenskiy said Kyiv will share a revised 20-point peace plan with the United States and stressed that there is still no agreement on the issue of territorial concessions, which Moscow continues to push for.

FXStreet