XAU/USD Slips Below $4,200 as Traders Navigate Fed's Mixed Signals on Rate Policy

Gold retreats to approximately $4,195 in early Tuesday trading across Asian markets. - A 90% probability now attaches to a 25 basis point cut at December’s Federal Reserve decision. - Employment metrics and job opening data will take center stage later Tuesday before the Fed announcement.

The yellow metal faces headwinds in overnight Asian dealings, with XAU/USD hovering near $4,195 levels. The selloff stems from market apprehension regarding potential hawkish messaging from Fed officials, even as they prepare to lower rates on Wednesday.

Market Positioning on the December Cut

Expectations have shifted dramatically regarding the Fed’s next move. The probability of a 25 bps reduction at the December FOMC meeting now stands at 90%, a significant jump from November’s 66% odds, per CME FedWatch data. This shift reflects growing confidence that rate cuts will continue, though the tone accompanying such moves remains uncertain.

“The market is fixated on the Fed decision and forward policy signals,” explained Peter Grant, metals strategist at Zaner Metals. A scenario where the central bank delivers a “hawkish cut”—lowering rates while signaling future restraint—would likely bolster the Dollar and pressure the commodity priced in USD.

Employment Data May Tip the Scales

Before the rate decision, investors will absorb the ADP Employment Change four-week average alongside JOLTS Job Openings figures for recent months. Should these reports disappoint relative to forecasts, renewed expectations for additional rate cuts could emerge, providing a tailwind for the non-yielding precious metal.

Why Rates and Gold Matter

The relationship is straightforward: lower interest rates reduce the cost of holding assets that generate no yield, making Gold more attractive to portfolio managers. Simultaneously, geopolitical tensions and economic uncertainty continue steering capital toward traditional safe-haven instruments. Recent friction between US and Ukrainian leadership adds another layer of risk sentiment tracking alongside Fed policy.

The near-term trajectory depends on how the Fed balances its desire to stimulate growth with concerns about inflation resilience. Traders watching this delicate dance will calibrate positions accordingly, with the December decision serving as a critical inflection point for XAU/USD and broader markets.