Gold (XAU/USD) stayed positive for a third straight day on Friday. It traded above $5,000, but gains were limited. Traders waited for the US Advance Q4 GDP report and the Personal Consumption Expenditures (PCE) Price Index. These reports were expected to shape views on the Federal Reserve’s next moves and the US Dollar.
Geopolitical tension also lifted demand for gold. Donald Trump gave Iran 10 to 15 days to reach a nuclear deal and warned of consequences. Iran told UN Secretary-General Antonio Guterres it does not want war. However, it said it would target regional bases and assets of any hostile force if attacked.
Federal Reserve Outlook And Dollar Impact
Federal Reserve meeting minutes showed no rush to cut rates. Officials also discussed the chance of raising rates if inflation stays high. A strong US labour market and hawkish Fed comments pushed the US Dollar to its highest level since 23 January, which capped gold’s upside.
On the technical side, gold bounced from the 100-hour SMA at $4,965.41, but price action stayed range-bound. MACD remained below the signal line and below zero, though the negative histogram was shrinking. RSI was 53.
Core PCE, the Fed’s preferred inflation measure, tracks year-over-year price changes excluding food and energy. Higher readings often support the US Dollar. The Bureau of Economic Analysis releases PCE along with Personal Spending and Personal Income after the GDP report.
In early 2025, gold struggled around the $5,000 level. Traders were unsure about the Fed’s direction, and geopolitics added to the volatility. Now, on February 20, 2026, that uncertainty has faded. The outlook for precious metals is clearer and more bullish. A wait-and-see approach is no longer the best strategy.
Strategy Considerations For Gold Derivatives
The main reason for the change is inflation. This was a big concern a year ago. The latest Core PCE reading for January 2026 was 2.1% year-over-year. That is a sharp drop from the 3.5% levels seen in early 2025, and it is now within the Fed’s target range. This has shifted expectations for interest rates.
As a result, the hawkish tone seen in the January 2025 FOMC minutes—including talk of possible rate hikes—has flipped. The most recent minutes show officials planning for at least two rate cuts before the end of 2026. This shift makes gold more appealing, because gold does not pay interest.
Geopolitical risks have also eased since 2025. The specific US-Iran threats cooled later that year, which removed some safe-haven demand from the market. While that reduced one source of support, it has been replaced by a stronger driver: expectations for easier monetary policy.
With this setup, derivatives traders may want to position for higher gold prices, rather than keep last year’s cautious stance. One direct approach is buying call options that expire after the next few FOMC meetings, aiming to benefit from rate cuts that could push gold higher.
Implied volatility in gold options often rises around major data releases and Fed events, which can make options more expensive. Because of that, bull call spreads can help reduce upfront cost and define risk. This approach offers upside exposure while limiting the premium paid, especially when the direction looks clearer than the timing.
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