Gold prices rose over 2%, crossing the $5,000 mark to reach $5,095, driven by geopolitical tensions and central banks buying more gold. The price peaked at $5,111 before stabilizing, representing an 18% increase in January. Tensions grew between Canada and the US after recent comments from Canada’s Prime Minister. Additionally, President Trump’s comments about the trade war are affecting gold prices. The US Dollar Index fell by 0.44%, trading at 97.04, as efforts were made to support the Yen and weakness in the US Dollar continued.

Solid US Economic Data

Recent US economic data showed stronger-than-expected Durable Goods Orders. This affects market conditions and shapes expectations for the Federal Reserve’s decisions on monetary policy. Technical indicators suggest gold might move above $5,100 or drop below $5,050, with $4,899 acting as a key support point. We recall the dramatic gold rally in early 2025 when prices broke the $5,000 mark, fueled by trade war talk and central bank purchases. The rapid rise to over $5,100 serves as an essential reference for today’s market. Although volatility from that time has calmed down, the impact of that surge lingers in traders’ minds. Central banks have continued to buy gold, with the World Gold Council’s year-end report for 2025 showing record net purchases of 1,136 tonnes. However, the US Dollar Index has strengthened since last year’s lows and is now above 103, supported by the Federal Reserve’s hawkish tone. This dollar strength is a significant challenge that wasn’t present during the 2025 boom.

Implied Volatility and Option Strategies

Implied volatility, which spiked dramatically during that time, has now stabilized around 17 on the Cboe Gold ETF Volatility Index (GVZ). This lower volatility means option strategies are cheaper than during last year’s buying peak. We can use this stable environment to build positions with defined risk. Given the market’s memory of the previous surge, buying long-dated call options with strike prices near the old $5,100 high could be a smart move. This strategy lets us join any potential rally caused by new geopolitical issues while limiting our maximum loss to the premium paid. These options provide leverage for unexpected upward movements. Conversely, with US inflation cooling to 2.9% as reported by the latest Consumer Price Index, the Fed has strong reasons to keep interest rates high. This supports the dollar and may limit gold’s potential, making protective puts a sensible hedge for those with long physical or futures positions. If the key $4,899 support level breaks, a more significant correction could be on the way, having been tested during the 2025 volatility. We need to watch closely for the Federal Reserve’s upcoming policy meeting, as their guidance will drive the dollar’s direction. Unlike last year, where geopolitical news caused major impacts, the current market is more affected by monetary policy and interest rate expectations. A hint of a dovish shift could boost gold prices, while a continued hawkish stance will probably keep gold trading within a range. Create your live VT Markets account and start trading now.

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