Gold prices have increased over the past month due to expectations around a potential decision from the Federal Reserve. Traders are eagerly waiting to see how this decision will shape market sentiment. Recently, gold prices broke out of a consolidation range that lasted since May, now exceeding $3,500. However, momentum decreased last week as traders prepared for the Fed’s decision, causing prices to stay near the upper limits of the range.

Factors Supporting Gold

Several factors are currently supporting gold’s position in the market. There is speculation that the Fed might ease monetary policy sooner than anticipated. If the Fed takes a dovish stance, the dollar may weaken, which could benefit gold, even though demand is usually lower in September. Although the Fed’s future plans are unclear, the long-term outlook for gold remains strong. Weak economic data from the US and the dollar’s challenges amid policy uncertainties bolster the case for holding gold. Additionally, central banks around the world are increasing their gold reserves, further enhancing gold’s attractiveness. With gold prices staying above $3,500, market momentum has slowed ahead of the Federal Reserve’s decision this week. This uncertainty has made buying call options a popular strategy. Traders hope for a dovish surprise that could drive prices higher while limiting their risk. This way, they can take advantage of a potential price rally without being overly exposed to losses.

Case for Dovish Fed Pivot

Recent economic data supports the argument for a dovish Fed pivot. The August 2025 CPI report revealed that inflation has eased to 2.8%, and the latest jobs report fell short of expectations, adding just 95,000 jobs. A softer approach from the Fed would likely further weaken the dollar, providing additional support for gold. Regardless of the Fed’s upcoming decision, solid support for gold persists. According to the World Gold Council, central banks added another 250 tonnes to their reserves in the second quarter of 2025, demonstrating their ongoing commitment. This sustained interest in long-term buying indicates that any drop in price will likely attract strong demand. For traders considering a “buy the dip” strategy, any price pullback should be seen as a potential opportunity. If the Fed issues a hawkish statement, it could temporarily lower gold prices, allowing traders to sell cash-secured puts at lower strike prices, like $3,450. This strategy enables them to earn premiums if prices remain stable or to establish a long position at a more desirable price. Historically, gold has faced challenges in September, but the current situation is different. Slowing US growth and persistent demand from official sectors could defy this seasonal trend. A dovish outcome from the Fed this week could be the key factor signaling a departure from past patterns. Create your live VT Markets account and start trading now.

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