Gold (XAU/USD) is seeing slight losses for the third consecutive day due to lower demand for safe-haven assets. However, it remains above $4,100, nearing a high of $4,264. The positive market sentiment impacts gold prices, but expectations of a US Federal Reserve interest rate cut after the December 10 meeting help keep declines in check. On Thursday, the US Initial Jobless Claims report might influence the US Dollar’s performance. However, focus is on Friday’s PCE Prices Index release. A triangle pattern has formed around $4,200, with technical indicators showing uncertainty. The 4-hour Relative Strength Index is at 50, and the MACD indicates slight bearish momentum.

Triangle Suggests Bullish Potential

The triangle pattern could signal a bullish trend, with resistance at $4,230 and $4,264. If it drops below $4,178, it might reach the November 27 lows near $4,140. Gold has historically served as a value store and is favored as a safe-haven asset in uncertain times. Central banks, especially in emerging economies like China, India, and Turkey, increased their reserves by 1,136 tonnes in 2022. Gold tends to move in the opposite direction of the US Dollar and US Treasuries. It is also affected by geopolitical issues and interest rates. Its price is closely linked to the performance of the US Dollar. Gold is currently in a narrow range near $4,200, which we view as a classic consolidation phase leading to a potential breakout. All eyes are on the Federal Reserve’s interest rate decision set for next Wednesday, likely driving the next major move. This waiting period offers a chance to prepare for upcoming volatility. The market is heavily favoring a rate cut, a sentiment supported by today’s Initial Jobless Claims report, which rose to 245,000—indicating a cooling labor market. Tomorrow’s PCE inflation data is crucial; a reading below the expected 3.1% would almost guarantee a dovish shift from the Fed. Therefore, any options strategies should be ready for increased volatility around this release.

Options Strategies For Volatility

If we see a breakout above the triangle’s resistance at $4,230, buying call options or bull call spreads could effectively capture upward momentum. A dovish Fed outcome would likely weaken the US Dollar and lower Treasury yields, creating ideal conditions for a rally toward the recent high of $4,264 and beyond. We could see a quick upward move, similar to past bullish breakouts. On the other hand, a surprisingly high PCE number might lead the Fed to maintain rates, ruining expectations for a cut and prompting a sharp market adjustment. In this case, a drop below the triangle’s support around $4,178 would signal a move to consider put options or bear put spreads aimed at the $4,140 level. A hawkish surprise would likely boost the US Dollar, putting strong pressure on gold prices. Regardless of the Fed’s short-term actions, it’s important to remember the significant underlying support for gold. Central banks have continued buying aggressively, adding over 950 tonnes to global reserves this year, according to the latest World Gold Council data. This ongoing demand supports the market, suggesting that dips will be seen as buying opportunities. Create your live VT Markets account and start trading now.

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