Gold Price Under Pressure: XAU/USD Drops Below $4,200 as Fed Hawkish Rhetoric Looms Over December Decision

Early Asian trading session marks another downward move for bullion

During Tuesday’s early gold trading hours in the Asian session, XAU/USD trades near $4,195, continuing its recent bearish momentum. The precious metal faces headwinds as market participants grapple with the possibility of the Federal Reserve maintaining a hawkish stance despite the widely-anticipated rate cut announcement.

Markets Lean Toward 25 Basis Points Cut, but with Caveats

According to the CME FedWatch tool, traders are pricing in a 90% probability of a 25 basis point rate reduction at December’s FOMC meeting—a significant shift from the 66% probability recorded in November. However, this expected easing comes with a critical caveat: investors worry that Fed officials may signal a more restrained pace of future cuts through their rhetoric and policy projections.

“A hawkish cut—one where the central bank delivers rate relief but signifies limited future accommodation—could strengthen the US Dollar and subsequently pressure gold prices,” explained Peter Grant, vice president and senior metals strategist at Zaner Metals. This scenario has created anxiety among precious metal bulls who anticipated more dovish messaging from policymakers.

Employment Data and Geopolitical Risk in Focus

Tuesday’s economic calendar carries significant weight, with the ADP Employment Change four-week average and JOLTS Job Openings reports slated for release before the Fed’s decision. Weaker-than-expected labor market data could reshape rate cut expectations and provide support for gold during the late Asian and European gold trading hours.

Beyond economic statistics, escalating geopolitical tensions continue to provide a floor for risk-averse capital flows. Fresh tensions between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy—centered on disagreements over peace proposals—reinforce gold’s role as a traditional safe-haven asset amid uncertainty.

The Rate Cut Paradox

The fundamental dynamic at play is the “rate cut paradox”: lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold, which should be supportive. However, if the Fed signals limited future easing, a stronger dollar—which makes gold more expensive for international buyers—could overwhelm this benefit. Market participants are essentially waiting for clarity on the Fed’s forward guidance to determine whether gold will find support or face additional selling pressure.