Gold (XAU/USD) above $4,300, with expectations of a baby step rate cut amid a flood of US indicators 'tight'... Will the upward momentum continue?

On Tuesday, Asian trading early in the day saw gold prices rise to around $4,305, avoiding profit-taking in the $4,300 range. This is the highest level in the past month. Following this, major economic indicators such as the US non-farm payrolls (NFP), retail sales, and manufacturing Purchasing Managers’ Index (PMI) are expected to be released all at once. If these figures suggest weakness, they could drive further gains in gold, but if strong employment data is released, some of the gains may be reversed.

The ‘Gap’ Between the Fed and the Market: Baby Step Cuts or Multiple Cuts?

The Fed implemented its third interest rate cut of the year last week and left the possibility open for additional cuts in 2025. As interest rates decrease, the cost of holding non-yielding gold diminishes, making the easing stance structurally positive for the gold market.

However, the specifics of the policy direction are diverging. According to the Fed’s economic outlook and SEP dot plot, a slight adjustment of about one 25 basis point cut by the end of 2026 is implied. However, market participants are already pricing in at least two or more cuts by the end of this year. As these expectations continue to diverge, gold will likely fluctuate based on interest rate outlooks.

Today’s Data Releases: The ‘Turning Point’ for Gold Direction

Investors are focusing on US economic indicators released on Tuesday, as postponed statistics due to government shutdown are finally being published. Starting with employment data, the market is assessing whether the economy is truly slowing down by examining consumer strength and manufacturing sentiment.

If these indicators point to economic weakness, the likelihood of additional Fed rate cuts increases, potentially pushing gold above $4,300 to higher levels. Conversely, if employment and consumption hold up better than expected, market bets on rate cuts may diminish, leading to a stronger dollar. In this scenario, the recent gains in gold could face downward pressure.

Ukraine ‘Peace Signal’ Could Be the Ceiling for Gold

The safe-haven appeal of gold has historically been supported by geopolitical risk premiums. If progress is made in Ukraine negotiations, this premium could diminish, putting downward pressure on gold prices.

US officials mentioned on Monday that an agreement with Ukraine is in the ‘final stages,’ but territorial issues and security guarantees remain unresolved. While hopes for peace are forming, the final settlement is expected to take time, which could temporarily suppress gold prices’ upper limit.