XAU/USD Surges Above $4,200 Following Fed's Third Rate Cut—What's Next for Gold?

Gold climbs to $4,235 as markets digest fresh Fed guidance

The precious metal is trading near $4,235 during early Asian hours on Thursday, buoyed by the US Federal Reserve’s latest monetary policy decision. The central bank cut its benchmark interest rate by 25 basis points on Wednesday, lowering the target range to 3.50%-3.75%—the lowest level seen in three years. This represents the Fed’s third consecutive rate reduction this year, reinforcing the trend that has supported non-yielding assets like gold.

Why lower rates fuel gold’s appeal

When interest rates decline, the opportunity cost of holding gold diminishes, making the precious metal more attractive to investors seeking alternative stores of value. Fed Chair Jerome Powell indicated during the post-meeting press conference that policymakers require additional time to evaluate how this year’s three rate cuts will filter through the broader US economy. Powell also signaled that Fed officials will scrutinize incoming economic data closely before the January meeting, suggesting a data-dependent approach moving forward.

Market expectations already priced in for January

According to the CME FedWatch tool, traders are currently pricing in a roughly 78% probability that the Federal Reserve will maintain rates at their current level during the next meeting in January. This represents a notable shift from the 70% probability recorded immediately before Wednesday’s rate decision, indicating growing market confidence that the cutting cycle may be pausing.

Geopolitical developments could reshape safe-haven demand

US President Donald Trump has challenged Ukrainian President Volodymyr Zelensky to finalize a peace agreement by Christmas, intensifying diplomatic pressure on both parties. Zelensky has indicated that Ukraine is preparing a revised peace proposal for imminent delivery to Washington, suggesting potential movement in negotiations. Should the Ukraine conflict progress toward resolution, traditional safe-haven assets like gold could face headwinds in the near term, as investors typically reduce demand for defensive positions during periods of de-escalation.

What traders should monitor

The release of US weekly Initial Jobless Claims later Thursday will provide crucial insight into labor market health. This data release could influence both equity markets and gold price dynamics, as employment figures directly impact Fed policy expectations for 2026 and beyond.