Gold prices are stable as traders await the Federal Reserve’s interest rate decision at 19:00 GMT. The market expects a cut of 25 basis points, but concerns about a hawkish approach are increasing US Treasury yields. Currently, gold (XAU/USD) is trading at around $4,204, within a recent range of $4,150 to $4,250. A reduction in the Federal Funds Rate to between 3.50% and 3.75% is anticipated, making gold, a non-yielding asset, more attractive.

Speculation of a Hawkish Stance

Concerns about a hawkish stance could raise US Treasury yields, negatively affecting gold prices. All eyes are on Fed Chair Jerome Powell’s press conference and updated economic projections for any hints about future policies. This year, the Fed has already made two cuts of 25 basis points. There’s a 90% chance for an additional cut at this meeting, but expectations for more cuts in early 2026 remain limited. Recent comments indicate some disagreement among Fed members regarding inflation and employment issues. The gold market shows uncertainty, evident in its recent narrow trading pattern. A dovish Fed might push prices above $4,250, whereas a hawkish statement could drive them down towards $4,150. With the Federal Reserve’s decision just hours away on December 10, 2025, the market has almost fully factored in the anticipated 25 basis point cut. Gold remains steady at $4,204, suggesting that the key variable will be the tone of the Fed’s statement and Powell’s comments. The primary risk involves a “hawkish cut,” where the Fed reduces rates but indicates a prolonged pause in early 2026.

Market Reactions and Strategies

This cautious approach follows the November jobs report, which showed non-farm payrolls rose by only 135,000—less than expected—indicating a cooling labor market. The latest CPI report for November showed inflation at 2.8%, down from previous months but still above the Fed’s 2% target. This mixed data leads us to believe that officials will be cautious about future policies. For those trading derivatives, the uncertainty before the announcement makes buying volatility appealing. Gold’s volatility index (GVZ) has risen to a three-week peak of 18.5, signaling a significant price movement is anticipated. A simple long straddle—buying both a call and a put option at around $4,200—could yield profits if the market moves sharply in either direction after the announcement. If Chair Powell delivers a surprisingly dovish message, suggesting more cuts may be considered in early 2026, we could see gold rise above the $4,250 resistance level. In such a case, holding out-of-the-money call options, like the $4,300 strike expiring in January, can provide leveraged upside potential. These options are relatively inexpensive and could benefit from a bullish reaction. On the other hand, if the Fed’s dot plot or Powell’s comments indicate a strong resistance to further easing, gold might quickly test its support levels. A hawkish tone could push prices down to around $4,150, which has been a reliable floor. Traders anticipating this scenario might consider buying put options with a strike price near $4,150 or lower to profit from a likely decline. Looking ahead, the political situation adds uncertainty, supporting volatility. President Trump is actively interviewing candidates to replace Chair Powell when his term expires in May 2026. This uncertainty regarding the Fed’s leadership suggests that using longer-term options to hedge portfolios against policy changes in the new year is wise. We have seen a similar situation before, like during the Fed’s “mid-cycle adjustment” cuts in 2019. Back then, the Fed cut rates but indicated it wasn’t the start of a major easing cycle, temporarily limiting gold’s rise. This historical context suggests that even with a rate cut today, gold’s rally may be restricted unless we receive clear dovish guidance. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now