Gold prices are close to $4,375 in early European trading. This rise stems from hopes of interest rate cuts by the US Federal Reserve and gold’s role as a safe-haven asset. The Federal Reserve has set the federal funds rate between 3.50% and 3.75%. There are signs of possible further rate cuts, which could make holding gold more appealing.

Geopolitical Tensions Boost Demand

Geopolitical tensions often increase the demand for gold because it holds its value in uncertain times. Recently, worries around the Russia-Ukraine situation have heightened market concerns. Yet, traders might look to secure their profits as the CME Group has raised margin requirements. This means traders will need to put up more cash to cover potential contract defaults. Gold serves as a hedge against inflation and currency loss due to its universal value. Central banks are the largest owners of gold, purchasing a total of 1,136 tonnes in 2022. Gold prices usually move in the opposite direction of the US Dollar and US Treasuries. A weaker Dollar tends to support gold prices, while a stronger Dollar can limit them. Economic and geopolitical issues greatly influence gold price movements.

Watch for Upcoming Economic Reports

With gold nearing $4,375, it’s essential to keep an eye on the upcoming US Nonfarm Payrolls report for December 2025. This data will significantly impact the US Dollar and influence Federal Reserve expectations in the following weeks. The market currently anticipates further rate cuts, driving gold’s recent rise. The Fed cut rates in December 2025 due to easing inflation, with Core PCE falling to 2.8% year-over-year in late last year. This trend provides the Fed with the justification for further cuts, especially if job growth, expected to be around 160k, is weaker than anticipated. Lower interest rates make non-yielding gold more attractive. Geopolitical tensions, especially the recent drone strike in Russia, create a strong foundation for gold prices. A similar situation occurred in early 2022 when gold surged following the onset of conflict in Ukraine. The ongoing risk of escalation should be considered in any short-term bearish outlook. However, caution is warranted. The Chicago Mercantile Exchange has raised margin requirements, making long positions more costly. This could lead to profit-taking or portfolio adjustments, limiting immediate price gains. An unexpected market reversal may surprise over-leveraged traders. The US Dollar’s response to next week’s jobs data is crucial since gold has a strong inverse relationship with it. The DXY has been declining since mid-2025; a weak jobs report could further this trend and lift gold prices. On the other hand, a surprisingly strong jobs number might strengthen the Dollar and pose challenges for gold. Central bank buying remains a strong support factor, a trend that intensified after significant purchases in 2022. Data from the World Gold Council through 2024 and 2025 shows that emerging market central banks are diversifying away from the Dollar. This ongoing demand helps cushion any dips caused by short-term speculative selling. With high implied volatility leading up to the NFP report, using options could be a smart move. Buying call spreads may allow traders to benefit from potential price increases while managing risk. Those who believe that geopolitical and central bank demand will provide stability might consider selling out-of-the-money puts to capture premium. Create your live VT Markets account and start trading now.

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