Gold prices are on the rise, inching closer to $4,500, even as the US Dollar gains 0.20% and US Treasury yields rise. Currently, XAU/USD is at $4,487, marking a nearly 1% increase driven by geopolitical tensions. Despite this uncertainty, stable US business activity—as indicated by Purchasing Managers Indices (PMI)—supports the argument for lower interest rates. Federal Reserve Governor Stephen Miran calls for rate cuts, while Richmond Fed President Thomas Barkin feels the Fed funds rate is neutral.

Predicting Federal Reserve Actions

Forecasts suggest that the Federal Reserve may cut rates by a total of 56 basis points by the end of 2026. Important upcoming US economic data includes the ADP Employment Change for December, ISM Services PMI, and JOLTS Job Openings. Even with a 0.25% rise in the US Dollar Index to 98.61, Gold prices remain steady. The US 10-year Treasury Note yield has climbed to 4.179%, with real yields up 1.5 basis points to 1.919%. Nonetheless, Gold continues to rise. Gold’s upward trend is strong and could surpass $4,500, even as it approaches the overbought level indicated by the RSI. A drop below $4,450 may lead to a decline towards $4,400. Gold is currently rallying robustly, defying the typical pressures of a rising US Dollar and increasing Treasury yields. This suggests that geopolitical fear is the primary driver of the market. For derivative traders, traditional correlations are shifting, and the focus needs to shift to the safe-haven aspect of gold.

Impact of Geopolitical Events

Anxiety from events in Latin America is causing a significant increase in gold purchases. This fear-driven momentum can lead to explosive price increases, pushing gold far beyond what traditional fundamentals would suggest. This should be viewed as the main reason for gold’s rise in the short term. This trend is backed by massive institutional buying. Central banks bought a record 1,085 tonnes of gold in 2025, breaking previous records. Just in the first week of this year, gold-backed ETFs saw net inflows over $1.2 billion, indicating that investors are looking for safety. This strong demand provides a solid base for the current rally. Conflicting signals from the Federal Reserve complicate the situation, but the market appears to lean towards a more dovish outlook. Traders are anticipating over 50 basis points in rate cuts for late 2026, which offers additional support for gold. Upcoming jobs and services data will be crucial in confirming or challenging these expectations. We’ve seen similar patterns before, especially reflecting on 2022 and 2023 from our perspective in 2025. During that period, geopolitical tensions related to the war in Ukraine helped gold remain strong, even while the Federal Reserve was aggressively raising rates. Historical trends indicate that during global instability, gold’s reputation as a safe haven can outweigh monetary policy influences. As we approach the critical $4,500 resistance level and overbought RSI signals, using call options might be a smart choice for those looking to benefit from potential gains while managing risk. Traders could consider buying at-the-money calls or employing bull call spreads to reduce entry costs. This strategy can yield profits if the upward momentum continues past this psychological threshold. On the other hand, we should be ready for a quick reversal if geopolitical tensions subside or if upcoming US economic data is surprisingly strong. To protect against sudden market changes, hedging long positions or initiating speculative shorts could be achieved by buying put options if gold falls below the $4,450 support level. This offers a clear trigger to safeguard against unexpected shifts in market sentiment. Create your live VT Markets account and start trading now.

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