FedWatch in gold trading
FedWatch is the CME tool that converts fed funds futures prices into the market-implied probability of each Fed rate decision, a key input for gold traders.
Also called CME FedWatch Tool, Rate probabilities, Fed funds futures odds
FedWatch is a free tool published by CME Group that uses 30-day fed funds futures prices to estimate the probability the market assigns to each possible outcome at upcoming FOMC meetings, for example a 70% chance of a 25 basis point cut and 30% of no change.
How it applies to gold trading
Gold reacts to changes in expected policy, not to the decision itself. If FedWatch already shows a 95% chance of a cut, the cut is largely priced in and gold may move little, or even fall, when it is announced. If the odds swing from 40% to 80% after a soft CPI report, that repricing is what moves gold.
Traders watch FedWatch before and after major data, Fed speeches and the FOMC decision. Comparing the probabilities with the statement and dot plot helps explain why gold moved the way it did. The tool shows market pricing, not a forecast of what the Fed will actually do.
Worked example
Example (hypothetical numbers): before NFP, FedWatch shows a 45% chance of a December cut. A weak payrolls number lifts it to 78%. Two-year yields drop 10 basis points and gold rises from 4,005 to 4,032. The data itself mattered less than the 33-point shift in cut odds.
A common mistake
Expecting gold to rise on every rate cut. If the cut was fully priced, the reaction depends on guidance about future cuts.
See also: FOMC, Fed funds rate, Rate hike and rate cut, Hawkish and dovish.
Frequently asked questions
How do gold traders use FedWatch?
To see what rate decision the market expects and how those odds change after data. Gold tends to react to the change in odds, not to the decision once it is priced in.
Is FedWatch a forecast of the Fed's decision?
No. It shows market-implied probabilities from futures prices, which can be wrong and change quickly.