Gold prices rose on Monday as investors sought safe-haven assets amid rising geopolitical tensions and expectations of interest rate cuts from the US Federal Reserve. Even with a strong US Dollar, gold reached a four-day high of about $4,430-$4,431. Tensions increased after a US military strike in Venezuela led to the capture of President Nicolás Maduro and his wife. Comments from US President Donald Trump about possible actions against Colombia and Mexico added to concerns about regional stability.

Trading Implications

The US Dollar’s gains were somewhat limited due to the potential for more interest rate cuts from the Fed, which helped gold’s price increase. Traders are watching for US economic data to better understand the Fed’s future decisions. From a technical perspective, gold has risen above the 100-hour Simple Moving Average (SMA), indicating a positive trend, with the RSI showing strong upward movement. Key economic reports from the US this week, such as the Nonfarm Payrolls report, will be important for predicting the future of both the US Dollar and gold prices. The growing geopolitical tensions are a major factor driving demand for safe-haven assets. The situation in Latin America adds uncertainty to existing global conflicts, making it sensible to hold long positions in gold. We can expect that any further escalations will boost demand in the weeks ahead. To take advantage of this upward trend while controlling risk, buying call options on gold or gold ETFs is a smart choice. This allows for potential gains with limited downside if the situation improves unexpectedly. Current options pricing reflects market anxiety.

Fed Rate Expectations

The anticipation of Fed rate cuts is providing additional support for gold. Throughout 2025, we saw markets often react ahead of the Fed’s predictions, and currently, Fed Funds futures indicate over a 70% chance of a rate cut by the March meeting. This divergence from the Fed’s tougher stance makes gold, which doesn’t yield interest, more appealing. We need to note that implied volatility has surged, with the VIX index going above 20 last week, the highest since the banking concerns in the third quarter of 2025. While this raises costs for option strategies, it also suggests that traders expect significant price changes, reflecting a heightened level of fear in the market. The spotlight is now on this Friday’s US Nonfarm Payrolls report, which will be critical for Fed considerations. A strong jobs report could bolster the US Dollar and complicate the narrative for an immediate rate cut, creating short-term volatility for gold. The recent ADP employment report showed an unexpected increase of 215,000 private sector jobs for December 2025, hinting at a strong official report. It’s uncommon for both gold and the US Dollar to rise at the same time, but this indicates a typical move towards safety. Traders are purchasing dollars for liquidity and gold as protection against systemic risks and currency depreciation. We should monitor if this trend continues after the inflation data is released. Create your live VT Markets account and start trading now.

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