XAU/USD Tests $4,150 Amid Surging December Rate Cut Expectations

Market sentiment shifts as Fed officials reinforce easing signals

Gold is currently testing resistance near the $4,140 mark in Asian trading Tuesday, riding a wave of renewed optimism around Federal Reserve rate cuts. The catalyst? A significant uptick in market conviction that the central bank will deliver a quarter-point reduction at December’s policy meeting—currently priced at 79% probability by the CME FedWatch tool, a dramatic jump from just 30% odds before recent Fed commentary.

Why lower rates boost bullion

When interest rates decline, the yield on traditional fixed-income assets falls, making non-yielding assets like Gold more attractive relative to alternatives. This dynamic has been the primary driver supporting XAU/USD’s recent strength, with the precious metal benefiting from a shift in rate expectations rather than new geopolitical developments or supply shocks.

Fed Governor Christopher Waller and San Francisco Fed President Mary Daly both signaled support for December easing, citing labor market softness as justification. Waller specifically noted that employment data remains weak enough to warrant action, while Daly emphasized growing vulnerabilities in hiring dynamics. These remarks have solidified market pricing that the Fed is indeed on track for monetary accommodation.

Economic data could reshape the narrative

Tuesday’s scheduled releases—ADP Employment Change, Retail Sales, and Producer Price data—will be closely monitored as traders seek clues about the Fed’s next move. The US is expected to report a 0.3% month-over-month increase in producer prices and a 0.4% MoM gain in retail sales. If actual figures exceed forecasts, the reaction could be complex: stronger economic data might embolden the Fed to maintain its cautious stance, potentially pushing the US Dollar higher and pressuring Gold prices downward.

Currency movements matter too

Traders watching currency pairs like NZD to USD conversions should note that commodity prices are inherently tied to Dollar strength. A stronger USD typically weighs on commodity valuations since they are Dollar-denominated globally. December rate cuts would likely weaken the Dollar, providing additional tailwinds for Gold to extend gains toward and beyond the $4,150 level.

What traders should watch

The path forward hinges on three elements: confirmation of the Fed’s December rate-cut commitment, economic data that validates or challenges the labor market weakness narrative, and USD currency movements. A miss on economic data could accelerate the rally toward $4,150, while a beat could trigger a pullback as markets reassess rate-cut odds.