Gold prices edged up as traders adjusted their positions ahead of the Federal Reserve’s interest rate decision. The market expects a second 25-basis-point rate cut, bringing the target range to 3.75%-4.00%. This slight increase helped recover some of the recent losses that brought gold close to $3,886. Currently, it trades around $3,995, reflecting nearly a 1.0% rise after three days of decline.

Optimism About US-China Trade Talks

Initial optimism regarding US-China trade talks reduced gold demand. Gold fell nearly 10% from last week’s high of $4,381 but has since stabilized near $3,900. With the Fed’s announcement approaching, traders are closely watching for hints of new measures. A more extended easing cycle could support gold prices, while a cautious Fed tone might limit any gains. The US Dollar and Treasury yields showed mixed results ahead of the Fed’s decision. The Dollar Index dropped from an intraday high to 98.71, while Treasury yields rose slightly. Official data is sparse because of the US government shutdown. However, ADP’s preliminary employment estimates indicate private sector growth, suggesting ongoing economic adjustments. Looking ahead, the market will also focus on discussions between President Trump and President Xi at the APEC Summit. The direction of gold prices may depend on the outcomes of these geopolitical events.

Upcoming Federal Reserve Decision

As we get closer to the Federal Reserve’s decision next week, similarities to past situations are emerging. Previously, markets were anticipating a second rate cut to lower the target range toward 4.00%, which was considered supportive at that time. Today, on October 29, 2025, the scenario is different; the Fed has held rates in a tight 4.50%-4.75% range for the last five months to manage inflation. Derivative traders are preparing for a potential dovish shift from the central bank, although the timing is uncertain. The CME FedWatch Tool indicates a 22% chance of a rate cut at the December 2025 meeting, up from 15% last week. This suggests that options markets are starting to anticipate a higher possibility of easing in early 2026. Recent economic data supports this perspective, creating a favorable environment for gold. The latest Consumer Price Index report from September 2025 showed headline inflation dropped to 2.8% year-over-year. Additionally, the recent jobs report revealed that hiring slowed more than expected, with just 160,000 jobs added. This combination of lower inflation and a cooling job market puts pressure on the Fed to consider easing policy soon. For gold derivative traders, this means rising implied volatility. The CBOE Gold Volatility Index (GVZ) has climbed to 18.5, reflecting increasing uncertainty about the Fed’s next moves. This makes long-dated call options attractive for traders who believe the central bank will cut rates by early next year. The geopolitical climate contrasts sharply with past focuses on a single US-China trade deal. While tensions with China still exist, the market is more concerned with broader supply chain changes and conflicts in other areas. This creates a more stable demand for safe-haven assets like gold, unlike the sharp swings seen during the Trump-Xi meetings. Historically, the easing cycle of late 2019 set the stage for the huge monetary stimulus that followed in 2020, driving gold to new highs. History shows that the start of a sustained Fed cutting cycle can be a significant long-term opportunity for gold buyers. Therefore, any hints from the upcoming Fed statement about ending the current tightening will be watched very closely. Create your live VT Markets account and start trading now.

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