Gold prices dropped during Thursday’s Asian session due to profit-taking and a stronger US Dollar. However, worries about geopolitical issues and expectations for interest rate cuts by the Fed may keep losses in check. The yellow metal fell after reaching seven-week highs as the dollar rebounded. Recent US jobs data has raised hopes for interest rate cuts, which could lessen the cost of holding gold. Tensions in Venezuela, where the navy is escorting oil ships, may also make gold more appealing as a safe-haven investment.

US Consumer Price Index and Initial Jobless Claims

Traders are looking forward to the US Consumer Price Index (CPI) data, which is expected to show a 3.1% year-over-year rise in November’s headline CPI and a 3.0% increase in core CPI. The US will also release weekly Initial Jobless Claims later today. Gold shows a positive trend in the long term, remaining above the crucial 100-day Exponential Moving Average. The widening Bollinger Bands suggest potential for further gains. If green candlesticks rise above the upper Bollinger Band, gold may reach around $4,400. If red candles dip below $4,300, there may be selling pressure. As of December 18, 2025, gold is retreating from recent highs near $2,450 an ounce due to profit-taking and a temporary rebound in the US Dollar. However, the outlook for gold remains favorable as we approach year-end.

Potential Federal Reserve Actions

The market is watching for future actions from the Federal Reserve, similar to the pivot expected back in late 2023. Currently, the CME FedWatch Tool indicates a greater than 70% chance of a first rate cut by March 2026. This anticipation of lower interest rates supports gold prices, making it less costly to hold the non-yielding metal. The upcoming US Consumer Price Index (CPI) report is expected to be a key factor. The November 2023 CPI reading was 3.1%, indicating slow inflation reduction. A similar reading now could lead to a quick drop in gold prices as the market may push back its rate cut expectations. Geopolitical uncertainties continue to support gold as a safe haven. Ongoing tensions in the Middle East, reminiscent of the disruptions that began in late 2023, suggest that significant price drops in gold will likely draw buyers. This uncertainty makes holding short positions in gold risky. For those trading derivatives, this situation hints at playing the anticipated volatility surrounding the upcoming inflation data. Using strategies like buying straddle or strangle options could be profitable, allowing traders to benefit from significant price moves without guessing the CPI outcome. Elevated implied volatility for gold options shows the market’s expectation of sharp movement. Traders with a directional bias might use options to manage their risks. If a soft inflation number supports the Fed’s rate-cut path, buying call options or call spreads could leverage a potential breakout in gold. On the other hand, if inflation remains stubbornly high, buying put options might serve as a hedge or a way to speculate on a price drop towards the 100-day moving average around $2,350. Create your live VT Markets account and start trading now.

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