In September, personal spending in the United States grew by 0.3%, matching expectations. This shows that consumer activity was stable during this time. After a cooler PCE inflation report, the Dow Jones Industrial Average increased by 150 points. At the same time, gold prices stayed steady at $4,200 as people anticipated potential interest rate cuts from the federal government. The Federal Reserve’s decisions have a big impact on the markets. Bitcoin is holding steady above $91,000, and Ethereum remains above $3,100. However, Ripple has been declining and is trading at $2.06. Next week, many are expecting a Fed rate cut. The dot plots and statements made during the meeting will be closely watched. Other central banks, like the RBA, BoC, and SNB, will also hold meetings, but no major surprises are expected. With the Federal Reserve meeting coming up on December 10th, the market has nearly fully priced in another rate cut. The CME FedWatch Tool shows a greater than 90% chance of a 25-basis-point cut, which would be the third in a row. Therefore, we should focus more on what the Fed says about the future and the dot plot rather than just the cut itself. Recent Personal Consumption Expenditures (PCE) data showed core inflation cooling to a yearly rate of 2.5%, supporting a more cautious approach. This decrease in price pressure allows the Fed to continue its rate cuts, a trend that has been happening this fall. It reminds us of the major market shift we saw in late 2023 when expectations for rate cuts began to rise. The VIX index, which measures volatility, has settled around 17, indicating that the market is not expecting any big surprises from the Fed. This environment may be good for selling options, assuming the Fed’s actions meet expectations. However, buying inexpensive, out-of-the-money puts on major indices can be a wise hedge against any unexpected moves. The U.S. Dollar continues to weaken, and we can expect this trend to continue if the Fed hints at more rate cuts. Options strategies on currency pairs like the EUR/USD, which is nearing yearly highs around 1.1700, could be a smart way to take advantage of this situation. Bullish call spreads might provide a defined-risk opportunity to benefit from a further decline of the dollar into the new year. Gold’s strength at the $4,200 level comes from lower real interest rates and a weaker dollar. As long as the Fed stays on this path of easing, precious metals are likely to rise. We can use options on gold futures or related ETFs to keep a long position while managing the risk of a sudden reversal from unexpected news.

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