Gold prices have risen by over 0.60% due to trade tensions between the US and South Korea. This increase has pushed the price to $5,091 after hitting a low of $4,990 earlier in the day. Concerns about potential foreign exchange market intervention to support the Japanese Yen have affected the US Dollar. Additionally, the possibility of another US government shutdown is adding to the market’s unease. So far this year, Gold prices have increased by 17.72%, approaching earlier gains of nearly 60% observed in 2025. The US Dollar Index has fallen by 0.90%, dropping to a four-year low of 96.14. Although the yield on the US 10-year Treasury note has slightly increased, it is not stopping Gold’s upward trend. Analysts predict that Gold could reach $6,000 per ounce by 2026.

Impact of Consumer Confidence

In January, US Consumer Confidence dipped to its lowest level since 2014, at 84.5. The Federal Reserve is likely to keep interest rates steady, but traders are eager for insights from Chairman Jerome Powell’s upcoming press conference. The market expects the Federal Reserve to ease rates by 45 basis points by the end of the year. Gold is viewed as a shield against inflation and tends to benefit from a weaker Dollar. Central banks added 1,136 tonnes to their reserves in 2022, which continues to impact the market with their substantial holdings. Economic instability and changes in the Dollar strongly influence Gold’s price. Given the current market volatility, the forthcoming Federal Reserve decision poses the biggest risk in the weeks ahead. We anticipate significant volatility; a surprisingly aggressive stance from Jerome Powell could lead to a rapid sell-off from current high levels. Many traders are employing options strategies like straddles to navigate the uncertainty around Wednesday’s announcement.

Safe Haven Rush

The combination of a trade war between the US and South Korea, along with the threat of a US government shutdown, is sparking a classic safe-haven rush. This situation supports holding long positions, and we are using call options to maintain potential gains while limiting downside risk. The fear premium in the market indicates that purchasing protection through put options is becoming pricey but essential for those with substantial unhedged positions. This rally is supported by strong physical demand, which we noticed throughout 2025. Recent data from the World Gold Council shows that central banks continued to purchase aggressively last year, adding over 1,000 tonnes to global reserves for the second consecutive year. This robust institutional buying implies that any significant price dips will likely encounter strong support. The main driver for Gold remains the weak US Dollar, which has hit a four-year low. As long as speculation about Japanese Yen intervention and Federal Reserve rate cuts persists, the Dollar will likely stay under pressure. We are using futures on the US Dollar Index as a hedge; a further decline below the 96.00 mark could drive Gold toward its all-time high. The drop in US consumer confidence to its lowest level since 2014 sends a strong recessionary warning. Historically, Gold has performed well during economic downturns, such as in 2008 and 2020, when investors tended to flee riskier assets. This trend supports the belief that Gold’s current upward movement still has potential, despite the possibility of a short-term correction. With major banks predicting Gold prices to reach $6,000, we are considering longer-term, out-of-the-money call options to speculate on this ongoing trend. The rising tariff situation resembles the US-China trade war that began in 2018, a multi-year conflict that offered persistent support for Gold. The current geopolitical landscape seems to be creating a similarly favorable environment for Gold in the long run. Create your live VT Markets account and start trading now.

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