XAU/USD Retreats as Market Digests Hawkish Fed Signals Ahead of December Decision

Gold trades near $4,195 in early Asia, weighing on sentiment as traders reassess Federal Reserve policy expectations for the upcoming December FOMC meeting.

The precious metal is under pressure from shifting market dynamics around potential rate-cut messaging. According to the CME FedWatch tool, there’s now a 90% probability that the Fed will cut rates by 25 basis points in December—a significant jump from November’s 66% forecast. The key concern isn’t just the rate cut itself, but whether the Fed will signal a more hawkish stance alongside the decision, which could bolster the US Dollar and create headwinds for USD-denominated commodities like gold.

Market Sentiment and the “Hawkish Cut” Scenario

The distinction between a dovish and hawkish rate cut matters enormously for gold traders. If the Federal Reserve delivers what’s called a “hawkish cut”—cutting rates while maintaining firm forward guidance—it could strengthen the US Dollar relative to other currencies. This dynamic ripples through international markets; for perspective, when the dollar strengthens, the 110 gbp to usd exchange rate and similar currency pairs are directly affected. A stronger USD reduces the appeal of gold for foreign buyers while simultaneously elevating the opportunity cost of holding non-yielding assets.

Peter Grant, vice president and senior metals strategist at Zaner Metals, underscored this tension: “The market is waiting for the Fed decision and for more guidance on policy.” The post-decision press conference and the Summary of Economic Projections (dot-plot) will be crucial for signaling future policy direction.

Employment Data as a Critical Test

Before the Fed announcement, Tuesday’s economic calendar brings the ADP Employment Change four-week average and JOLTS Job Openings data for September and October. These reports could serve as a potential circuit-breaker for gold prices. Weaker-than-expected employment figures would strengthen the case for a more dovish Fed, potentially boosting gold by encouraging expectations of continued or accelerated rate reductions. Lower interest rates reduce the opportunity cost of holding gold, making the yellow metal more attractive to investors seeking yield-free assets.

Safe-Haven Dynamics Adding Complexity

Beyond Fed-driven moves, geopolitical uncertainty continues to underpin traditional safe-havens. Rising tensions between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy, with fresh accusations over peace proposal negotiations, remind markets that gold retains its role as a crisis hedge. This dual dynamic—monetary policy headwinds offset by geopolitical support—explains why gold continues to command attention despite selling pressure near $4,195.