Gold price, trading at approximately $4,230, has experienced a surge due to speculation that the US Federal Reserve might cut interest rates in December. The increased likelihood of this rate cut is driven by weaker US economic figures and dovish comments from Fed officials. The CME FedWatch Tool indicates nearly an 87% probability of a rate cut in December, up from 71% in the previous week.
Interest rates impact the opportunity cost of holding gold, and easing rates can bolster the non-yielding asset. The US ISM Manufacturing PMI for November is anticipated to slightly decline from 48.7 to 48.6. A surprising increase could boost the US Dollar, potentially affecting gold prices negatively, as gold is priced in dollars.
US And Ukraine Peace Discussions Impact
Amid these dynamics, ongoing peace discussions between the US and Ukraine might lessen gold’s appeal as a safe-haven asset. Gold is traditionally seen as a hedge against inflation and currency depreciation. It has an inverse relationship with the US Dollar and risk assets, often rising when the Dollar weakens and when riskier markets decline.
Central banks have been increasing their gold reserves, with 1,136 tonnes added in 2022. Central banks from emerging economies like China, India, and Turkey have notably increased their gold reserves.
With gold now trading above $4,230, we must focus on the Federal Reserve’s expected rate cut on December 10th. Recent US economic data supports this, as the latest report showed non-farm payrolls in November added just 95,000 jobs, reinforcing the case for easing. The market has priced in an 87% probability of a cut, making this the primary driver for our strategy.
For derivative traders, this environment suggests positioning for further upside in gold. Buying call options on XAU/USD or gold ETFs offers a way to capitalize on the expected rally following the Fed’s announcement. This allows us to have defined risk if the Fed delivers a surprise and decides to hold rates steady.
We should, however, pay close attention to today’s US ISM Manufacturing PMI release. A stronger-than-expected number could cause a short-term spike in the US Dollar and a temporary pullback in gold. This dip could represent a more attractive entry point for us to build our long positions ahead of the Fed meeting.
Central Bank Demand And Historical Fed Pivots
Looking at the bigger picture, central bank demand continues to provide a strong floor for prices. Data from the World Gold Council for the third quarter of this year, 2025, showed central banks added another 250 tonnes to their reserves. This sustained institutional buying signals underlying strength that goes beyond short-term monetary policy.
History shows us that a Fed pivot is typically very bullish for gold. When we look back at the Fed’s shift to an easing cycle in mid-2019, it preceded a major rally in the precious metal. We believe a similar pattern could unfold in the coming weeks and into early 2026.
The main risk to this bullish outlook is a significant de-escalation in geopolitical tensions. Progress in peace talks between the United States and Ukraine could reduce demand for gold as a safe-haven asset. We need to closely watch for any developments from the upcoming meeting in Moscow.
