Fed Rate Cut Pushes Gold to 7-Week Peaks as XAU/USD Breaks Through $4,275

Rate reduction ignites precious metal rally amid dollar weakness

Gold rallied sharply on Friday morning, reaching seven-week highs near $4,275 as the US Federal Reserve’s recent monetary easing continues to support bullion prices. The precious metal’s momentum reflects a confluence of factors including softer labor market conditions and reduced US Dollar strength following the Fed’s policy shift.

The Fed’s Policy Move Reshapes Market Dynamics

The Federal Reserve’s decision to lower rates by 25 basis points in a contentious split vote on Wednesday set borrowing costs at their lowest level in three years, with the target range now positioned at 3.50% to 3.75%. This reduction carries significant implications for gold investors, as lower interest rates diminish the opportunity cost of holding non-yielding assets like the yellow metal, making it more attractive relative to fixed-income alternatives.

Market participants are watching Fed messaging carefully, however. Policymakers have signaled a likely pause in the rate-cutting cycle as they assess labor market resilience and inflation trends that “remain somewhat elevated.” According to CME FedWatch data, markets are currently assigning a 78% probability to the Fed holding steady at its next meeting—up notably from the 70% odds priced in before Wednesday’s announcement.

Weak Jobs Data Pressures the Greenback

Employment figures released by the US Department of Labor revealed a significant uptick in initial jobless claims last week—the largest increase in nearly four and a half years. This weaker-than-expected jobs metric undermines the US Dollar, reducing its appeal as investors reassess labor market strength. The softer economic backdrop provides a natural tailwind for dollar-denominated commodities like gold, even as traders balance XAU/USD dynamics against broader currency movements affecting pairs like XAU/CAD.

Geopolitical Risks Enter the Picture

Developments surrounding potential Ukraine peace negotiations could introduce headwinds for traditional haven assets. Ukrainian President Volodymyr Zelensky confirmed Thursday that Kyiv’s delegation engaged with top US officials to discuss security arrangements, with Ukraine presenting a revised 20-point framework aimed at resolving the conflict. Should geopolitical tensions ease materially, the safe-haven demand that typically bolsters gold prices could face pressure, potentially capping further upside in the short term.

The interplay between accommodative Fed policy, economic data releases, and geopolitical developments will likely determine gold’s direction in the sessions ahead.