Gold prices fell by 4.50% to about $4,330 on Monday after hitting a record high on Friday. This drop is mainly due to profit-taking and a stronger US Dollar, which affects non-US buyers as the year-end holidays get closer. Even with this decline, there is still support for Gold because of expectations for Federal Reserve interest rate cuts next year. Political uncertainty in the US is also affecting the market, as concerns about central bank independence boost the appeal of safe-haven assets like Gold.

Geopolitical Issues and Gold Demand

Geopolitical tensions, like the situation in Ukraine and China’s actions near Taiwan, are fueling Gold demand as a safe haven. This recent drop in prices is viewed as a brief pause in a strong upward trend, rather than a sign of a longer-term decline, as overall demand remains stable. Gold is seen as a safe-haven investment during economic uncertainty and serves as a hedge against inflation. Central banks are the biggest buyers, adding 1,136 tonnes to their reserves in 2022, which is influenced by emerging economies looking to diversify. Gold’s prices move in the opposite direction of the US Dollar and US Treasuries. Factors like geopolitical instability, recession fears, and interest rates also affect its pricing. Since Gold is priced in US Dollars, a strong Dollar can limit its price increases, while a weaker Dollar tends to boost them. The recent 4.5% pullback from record highs indicates significant profit-taking. This sharp movement has increased implied volatility, making options trading very appealing right now. Traders can take advantage of this by selling premium, especially during the thinner holiday trading periods that can cause more market fluctuations.

Strategies and Market Outlook

We think this dip is a brief pause, not a shift in the overall upward trend. The recent rebound in the US Dollar Index, which recently hit a three-week high, is currently the biggest obstacle. Therefore, we are exploring strategies like selling weekly call options against long positions to earn income while the market stabilizes. The medium-term outlook for Gold remains positive, thanks to expectations of monetary easing. Current market data from the CME FedWatch Tool shows a greater than 75% chance of at least two Fed rate cuts by mid-2026. This scenario makes purchasing long-term call options, such as those expiring in March or June 2026, a smart way to prepare for the next surge. Strong support is still provided by central banks, which have consistently bought Gold during the interest rate hikes of 2024 and 2025. According to the World Gold Council’s latest data, net purchases are anticipated to surpass 900 tonnes this year, continuing the record-setting trend seen in 2022. This steady demand helps cushion the market during downturns. Additionally, ongoing geopolitical tensions in key areas remain a source of safe-haven demand. This period of price stability resembles what we experienced in late 2020 after a strong rally that year. Back then, the market took several months to consolidate before rising again due to macroeconomic influences. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now