Gold prices increased by 1.5% after the Federal Reserve cut interest rates by 25 basis points, lowering them to a range of 3.75%-4%. This decision came despite the chairperson’s cautious comments about future cuts. The vote was 10-2, with one member proposing a larger cut and another arguing against any cut. Gold was priced at $3,995, supported by falling US Treasury yields and geopolitical issues. The chairperson mentioned the strong labor market but indicated that there may be a pause in future rate cuts. US Treasury yields stayed steady, which also affected gold prices.

Impact of Trade Relations

US-China trade relations could also affect gold’s performance, especially after recent talks between the two countries. The US Dollar Index rose by 0.37%, while US real yields saw a slight increase. Additionally, the Federal Reserve announced it will stop Quantitative Easing by December 1. Gold’s future looks good, with the need to break above $4,000 to maintain its momentum. Central banks are significant holders of gold, having added considerable amounts to their reserves. Gold typically moves in the opposite direction of the US Dollar and US Treasuries and is considered a safe haven influenced by various global events. After the Fed’s rate cut, we’re facing a market filled with mixed signals. While the 25 basis point cut is seen as gentle, Jerome Powell’s cautious stance about December introduces uncertainty. This environment is ripe for volatility, making options trading a viable strategy. Gold is currently testing the critical $4,000 mark, and the outcome is uncertain. A US-China trade truce could usually weaken gold, but the drop in Treasury yields is providing strong support. This back-and-forth suggests that using straddles or strangles might be an effective approach for capitalizing on upcoming price movements without needing to predict the direction.

Decoding Powell’s Caution

Powell’s reluctance to cut rates again in December makes sense when we consider this year’s inflation data. Core PCE inflation has stubbornly stayed around 2.8% through the third quarter of 2025, which is still above the Fed’s target. This ongoing issue supports the idea that the Fed may pause, providing an opportunity to bet against the current market’s 76% chance of another cut. The labor market also backs the Fed’s cautious approach. Non-farm payrolls have been a strong 175,000 per month in 2025, showing resilience despite higher rates. This strength could support the US dollar in the short term and create challenges for gold trying to climb above $4,100. Looking at the long term, support for gold remains strong. In 2022, central banks purchased a record 1,136 tonnes, and reports from the World Gold Council for 2024 and early 2025 show this trend is continuing, especially among emerging market buyers. This steady demand provides a solid foundation for gold prices, making any significant price dip an appealing chance for longer-term investors. This situation is reminiscent of the Fed’s shift in 2018-2019. At that time, the Fed indicated a pause after a series of rate hikes, only to be compelled to cut rates as economic data weakened a few months later. Powell’s current hawkish remarks could easily shift if we notice any substantial weakness in the job market before the year ends. Create your live VT Markets account and start trading now.

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