Gold prices are close to an all-time high, currently trading around $4,855 after peaking at $4,888. The rise is driven by increased geopolitical risks and economic uncertainties, particularly tensions between the US and EU over trade, with tariffs being threatened by the US and Europe considering responses. Concerns about Japan’s bond market and global fiscal health are boosting demand for gold as a safe investment. For example, Danish pension fund AkademikerPension plans to sell $100 million in US Treasuries due to these fiscal worries. Meanwhile, the US Dollar Index remains stable around 98.50 after recent lows.

Technical Analysis Of Gold

The technical analysis indicates that gold is in a strong position even though it might be overbought. There is resistance at approximately $4,868.15, with potential to rise to $5,000, while support is around $4,699.64. The Relative Strength Index shows a possible pullback, but the strong upward trend prevails. Central banks, which hold the most gold, added 1,136 tonnes in 2022, marking their largest annual purchase ever. Gold prices are influenced by geopolitical events, economic downturns, and their relationship with the US Dollar and interest rates. Currently, there are few economic reports, so the market is focused on geopolitical news and upcoming US economic data. As gold approaches $4,900, the market is stretched but still strong. Given rising US-EU trade tensions, it might be wise to buy call options with strike prices at or above the psychological $5,000 mark. This strategy allows participation in further price increases while limiting risk in this volatile market.

Investment Strategies in Volatile Markets

However, the Relative Strength Index indicates that gold is overbought, above 80, suggesting a strong chance of a sharp pullback. It would be wise to purchase put options with short expiration dates to protect against a quick drop in geopolitical tensions. This serves as insurance if the upward trend reverses suddenly. The implied volatility in gold options has reached levels not seen since the market panic during the 2020 pandemic, making options premiums quite high. To manage these costs, we can use vertical spreads, like bull call spreads or bear put spreads. These strategies reduce the entry cost and create a defined profit and loss zone. The current turmoil in global bond markets, especially in Japan and the US, is a key factor driving this gold rally. It’s important to monitor the US 10-year Treasury yield; if it continues to decline, it will likely support gold’s rise. Historically, a fall in real yields inversely correlates with rising gold prices. This whole trend is underpinned by strong demand from central banks. They added over 1,000 tonnes to their reserves in both 2022 and 2023, indicating a consistent trend. This long-term buying pressure suggests that significant price dips may be seen as buying opportunities. Create your live VT Markets account and start trading now.

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