Gold prices fell over 1.50% on Wednesday after a 5% drop on Tuesday, marking the biggest one-day loss in five years. Currently, XAU/USD is at $4,050, down from a peak of $4,161, as traders await the upcoming US inflation report. Even with a slight drop in the US Dollar index, Gold remains under pressure, falling below the October 8 high of $4,059. Year-to-date, Bullion is still up by 54% amid expectations for more Federal Reserve interest rate cuts.

US Consumer Price Index Report

The US Consumer Price Index report is set to be released on Friday. Analysts expect the Core CPI to hold steady at around 3.1%. Additionally, there’s news that the White House might limit exports to China, which could impact global trade, especially in technology. The 10-year US Treasury yield has decreased by 1.5 basis points to 3.951%, affecting real yields and Gold prices. Many market players expect a strong chance of a 50 basis point rate cut this year and even 100 basis points in cuts by 2026. Technically, Gold prices are pulling back but are still seen as bullish above certain support levels. A rise above $4,100 might lead to further gains, while a drop below key levels could increase losses. As of October 23, 2025, there’s significant profit-taking in gold after a historic run. This week’s sharp 5% drop was the largest one-day loss since the volatile markets in 2020, reminding traders that such pullbacks can happen after big rallies. Traders are clearly reducing risk ahead of Friday’s inflation report.

All Eyes On Inflation Data

Attention is focused on the US Consumer Price Index (CPI) data. The market is pricing in a 98% chance of a 50 basis point Fed rate cut by year-end. A higher-than-expected inflation number could challenge this outlook and push gold down toward the $4,000 level. Conversely, a CPI number that meets or falls below expectations would likely revive the rally, confirming the Fed’s strategy and pushing prices closer to recent highs. From a derivatives perspective, the uncertainty before the CPI release means that implied volatility on short-term gold options is likely high. This creates an opportunity for traders to sell premium, possibly using an iron condor if they believe prices will stay within a range after the news. For those anticipating a significant price swing, buying a straddle could be a good strategy to profit from movement in either direction. Long-term fundamentals for gold remain strong. Central banks have consistently been buyers, and their record purchases of 1,136 tonnes in 2022 continued into 2023 and 2024, absorbing market supply. This consistent demand suggests that significant dips, like the current one, might be seen as buying opportunities for larger investors. For traders aiming to position themselves for a rebound, buying call options with a strike price above $4,100 is a cost-effective way to take advantage of potential upside. However, if the crucial $4,000 support level is broken after the CPI data, purchasing put options could be a wise hedge or speculative move for a deeper correction toward the 50-day moving average near $3,722. Concerns about potential US export restrictions to China also add geopolitical risk, which might trigger a flight to safety, making a small long position a sensible hedge. Create your live VT Markets account and start trading now.

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