The Fed's 'Baby Step' three consecutive hikes push gold prices above $4,235 per ounce... Caution over policy limits upward momentum

More Cautious Stance Deepens Gold Buying Than Expected

The US Federal Reserve( Fed and the Federal Reserve) have implemented a cut in the benchmark interest rate at the expected level, but their cautious stance on future policy directions is calming market excitement. The Fed lowered the benchmark rate by 25bp( 0.25% points) at the December Federal Open Market Committee( FOMC) meeting, adjusting the operational target to 3.50~3.75%. This completes three ‘baby step’ rate cuts this year, indicating that the rate cut cycle has reached its lowest level in three years.

However, immediately after the policy decision, the international gold price( XAU/USD) rose to $4,235 per ounce during early Thursday Asian trading, showing a cautious attitude. While the opportunity cost reduction due to the rate cut clearly boosts demand for safe assets, the uncertain future policy stance of the Fed is restraining further gains.

“We will judge after seeing the effect”… Powell’s cautious signal

Jerome Powell, in a press conference, conveyed the message that “the three baby step rate cuts made this year need to be observed over time to assess their impact on the economy.” This statement is interpreted as a signal to control expectations of additional rate cuts.

In fact, the Fed maintains its 2026 dot plot, expecting only one additional rate cut. This indicates a commitment to carefully decide after a comprehensive review of economic indicators rather than excessive monetary easing.

Market Already Reads ‘January Hold’

The derivatives market has quickly reflected the Fed’s cautious stance. According to CME FedWatch, the probability of a rate hold in January has surged from about 70% just before the announcement to around 78% now. This shows market participants perceive the Fed’s baby step rate cuts as a temporary measure.

Investors are now focusing on labor market indicators such as weekly US jobless claims. The cooling pace of employment is expected to be a key factor influencing the Fed’s next decision.

Geopolitical Tensions Easing as a Variable

Meanwhile, external factors influencing short-term gold price movements include developments in Ukraine. US President Trump has urged Ukrainian President Zelensky to pursue peace negotiations with Russia by Christmas. Zelensky is also reportedly planning to present a revised peace plan soon.

If geopolitical tensions ease rapidly, the appeal of safe assets like gold could weaken in the short term. Currently, the gold market is navigating between the positive factor of the Fed’s baby step rate cuts and the risk-on sentiment driven by progress in peace negotiations.