Gold Price Forecast: XAU/USD climbs above $4,250 as Fed rate cut weakens US Dollar

• Gold price gains momentum to around $4,275 in Friday’s early European session. 

• The Fed’s decision on Wednesday to cut rates by 25 basis points in a split vote supports the yellow metal. 

• Positive developments surrounding the Ukraine peace deal might cap the upside for the Gold price. 

Gold price (XAU/USD) rises to seven-week highs near $4,275 during the early Asian session on Friday. The precious metal extends its upside as the US Federal Reserve’s (Fed) quarter-point rate cut drags the US Dollar (USD) lower. 

The number of Americans filing new applications for unemployment benefits increased by the most in nearly four and a half years last week, according to the US Department of Labor (DOL) on Thursday. This weaker-than-expected jobs data weighs on the Greenback and provides some support to the USD-denominated commodity price. 

The Fed decided to cut rates by 25 basis points (bps) in a split vote on Wednesday, putting it in a range of 3.50% to 3.75%, its lowest level in three years. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

However, Fed policymakers signaled a likely pause in further reductions as they monitor labor market trends and inflation that "remains somewhat elevated.” Markets are currently pricing in nearly a 78% probability that the Fed will hold interest rates steady next month, compared with a 70% odds just before the rate cut announcement, according to the CME FedWatch tool.

Hopes for a Ukraine peace deal could undermine a traditional safe-haven asset like Gold. Ukrainian President Volodymyr Zelensky said on Thursday that Kyiv’s delegation spoke with top US officials to discuss security guarantees for Ukraine in a video call after presenting America with a revised 20-point framework to end the war with Russia.