Gold is currently priced at about $4,230, rising due to speculation around a potential interest rate cut by the US Federal Reserve in December. This speculation follows weaker US economic data and comments from Fed officials suggesting a more dovish stance. The CME FedWatch Tool shows nearly an 87% chance of a rate cut in December, up from 71% last week. Interest rates influence the cost of holding gold, and lower rates can support this non-yielding asset. The US ISM Manufacturing PMI for November is expected to dip slightly from 48.7 to 48.6. If this number surprises and increases, it may strengthen the US Dollar and negatively affect gold prices since gold is dollar-denominated.

US and Ukraine Peace Talks Impact

In this context, ongoing peace talks between the US and Ukraine may lessen gold’s appeal as a safe haven. Gold is usually viewed as a protection against inflation and currency depreciation. It tends to move opposite to the US Dollar and risk assets, increasing when the Dollar weakens and when riskier markets decline. Central banks are adding more gold to their reserves, with a total of 1,136 tonnes added in 2022. Countries like China, India, and Turkey have notably increased their gold holdings. With gold trading above $4,230, we should keep an eye on the Fed’s anticipated rate cut announcement on December 10th. Recent US economic data supports this expectation, especially as November’s non-farm payroll numbers showed only 95,000 jobs added. The market reflects an 87% chance of a rate cut, driving our strategy. For derivative traders, this market suggests potential upside in gold. Purchasing call options on XAU/USD or gold ETFs could help us profit from the expected rally following the Fed’s decision. This strategy allows us to manage our risks if the Fed surprises the market by holding rates steady. We should also monitor today’s US ISM Manufacturing PMI release. A stronger PMI could briefly boost the US Dollar and lead to a temporary dip in gold prices. This pullback could create a good opportunity for us to increase our long positions ahead of the Fed meeting.

Central Bank Demand and Historical Fed Changes

Looking ahead, central bank demand continues to support gold prices. According to the World Gold Council, central banks added another 250 tonnes to their reserves in the third quarter of this year. This ongoing institutional buying indicates resilience beyond short-term monetary policy shifts. Historically, a pivot by the Fed is very positive for gold. For instance, when the Fed shifted to an easing cycle in mid-2019, it led to a significant rally in gold prices. We believe a similar trend could happen in the coming weeks and into early 2026. The main risk to this positive outlook comes from reduced geopolitical tensions. Progress in peace talks between the US and Ukraine could decrease gold’s appeal as a safe haven. We should carefully watch for updates from the upcoming meeting in Moscow. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now