Gold surged by 1.5% following the Federal Reserve’s decision to cut interest rates by 25 basis points, bringing them to 3.75%-4%. This occurred despite the chairperson’s cautious remarks about future cuts. The Federal Reserve’s decision came with a 10-2 vote, with one member suggesting a larger cut and another suggesting no cut at all.

Gold traded at $3,995, bolstered by declining US Treasury yields and geopolitical factors. While the chairperson noted the labour market’s resilience, he hinted at a potential pause in future rate reductions. US Treasury yields remained stable, influencing gold prices.

Trade Relations Impact

Additionally, US-China trade relations could impact gold’s progress, following recent discussions between the US and China. The US Dollar Index rose by 0.37% but US real yields increased slightly. The Federal Reserve also announced an end to Quantitative Easing by December 1.

Gold’s outlook is favourable, with a need to surpass $4,000 to maintain momentum. Central banks remain major holders of the metal, having added substantial amounts to their reserves. Gold has an inverse relationship with the US Dollar and US Treasuries and is seen as a safe-haven asset influenced by various global factors.

Given the Fed’s rate cut yesterday, we are now dealing with a market full of mixed signals. The actual 25 basis point cut is dovish, but Jerome Powell’s cautious tone for the December meeting injects uncertainty. This creates a ripe environment for volatility, which is something we can position for using options.

Gold is currently fighting the key $4,000 level, and the outcome is unclear. The US-China trade truce should technically weaken gold, but falling Treasury yields are providing strong support. This tug-of-war suggests that using straddles or strangles could be a smart way to trade the expected sharp move without betting on a specific direction.

Understanding Powell’s Caution

Powell’s hesitation on a December cut is understandable when we look at the inflation data from this year. We have seen Core PCE inflation remain stubbornly sticky around 2.8% through the third quarter of 2025, which is still well above the Fed’s target. This persistence gives credibility to the idea that the Fed may indeed pause, creating an opportunity to bet against the market’s current 76% odds of another cut.

The labor market also justifies the Fed’s caution. Non-farm payrolls have averaged a respectable 175,000 per month in 2025, showing resilience even with higher rates. This underlying strength could keep the US dollar supported in the short term and act as a headwind for gold’s push above $4,100.

Looking at the bigger picture, the long-term support for gold remains solid. We know central banks bought a record 1,136 tonnes back in 2022, and reports from the World Gold Council for 2024 and early 2025 confirmed this trend continued, especially from emerging market buyers. This consistent demand creates a strong floor under the price, making any significant dip an attractive entry point for longer-term bullish positions.

This situation reminds us of the Fed’s pivot back in 2018-2019. Back then, the Fed signaled a pause after a series of hikes, only to be forced into cutting rates months later as economic data softened. Powell’s current hawkish talk could easily be reversed if we see any serious weakness in the job market before the year ends.

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