XAU/USD, expected to move with a baby step around the $4,300 level depending on US economic indicators... progress in peace negotiations is a variable

Tuesday Asian time, gold is trading around $4,305 and maintaining above $4,300, but the future direction is likely to be determined by major US economic indicators released today( after the peak) on October 21.

As the geopolitical risk premium gradually diminishes, market interpretations of the Fed’s policy path are diverging, leading to an earlier stabilization in gold prices.

Investors are concerned that progress in Ukraine peace negotiations may weaken the appeal of safe-haven assets, while if signs of economic slowdown appear, bets on rate cuts could resurface, potentially pushing gold higher.

Fed’s cautious stance vs. market’s active interpretation: expectations of rate cuts are split between ‘baby steps’

Despite the Fed’s decision last week to cut interest rates for the third time this year and to outline additional cuts next year, perspectives on the monetary policy path remain conflicting. The median forecast in the Fed’s dot plot(SEP) suggests only one 25bp cut by the end of 2026, but financial markets are already pricing in at least two cuts by year-end.

As interest rates are cut, the opportunity cost of holding non-yielding assets like gold decreases, providing a structural advantage for gold demand. However, since the extent of further cuts remains uncertain, gold exhibits cautious, baby-step movements in response to each policy signal.

Today’s key economic indicators will gauge the extent of gold price increases

US economic data delayed by the federal government shutdown will be released all at once on Tuesday, with non-farm payrolls(NFP), retail sales, and PMI(PMI) attracting market attention.

If data indicating clear signs of economic slowdown appear, the market will reassess the need for additional Fed rate cuts, strengthening rate cut bets. In this scenario, gold could test higher price levels and extend its gains.

Conversely, if employment, consumption, and economic indicators surpass expectations and show resilience, the market will judge that “the Fed has limited reasons to aggressively ease policy.” This could lead to a rebound in the dollar and a partial correction of gold’s short-term gains.

Ukraine peace negotiations: imminent risk of reducing safe-haven premiums

The sustained demand for gold as a safe asset has been significantly influenced by geopolitical risk premiums. As expectations for progress in Ukraine peace talks increase, the process of removing these risk factors from market prices may begin.

US officials have publicly stated that negotiations with Ukraine are “nearing the final stage,” but issues related to territory and security guarantees remain unresolved. Therefore, while optimism about a successful agreement has grown, substantial distance remains before full risk resolution, which could act as a limiting factor for gold prices.