Gold prices are slightly up as mixed US labor data affects market sentiment. The metal is trading around $4,490, recovering from a dip to $4,400. The US economy added 50,000 jobs, which is below the expected 60,000. The unemployment rate dropped to 4.4% from 4.6%, which was also lower than expected. The Federal Reserve is likely to keep interest rates steady in this month’s meeting, amid speculation about two rate cuts later on.

Focus On Inflation Expectations

Gold tends to benefit from lower interest rates since it does not yield any interest. The market’s attention is now on the University of Michigan’s survey of consumer sentiment and inflation expectations, as well as speeches from Federal Reserve officials. Geopolitical tensions are increasing, especially with the US extending its oversight on Venezuelan oil exports. Controversial statements from political leaders and unrest in various areas heighten caution, which boosts demand for gold. The US trade deficit has narrowed to $29.4 billion, the smallest since June 2009. Technically, gold prices are staying above the 21-day moving average, indicating a positive outlook. Key support levels are between $4,400 and $4,380, while resistance is at $4,500. A breakthrough could lead to past highs. Gold’s price tends to move inversely to US nonfarm payroll results, impacting market dynamics.

Puzzle For The Federal Reserve

The mixed US labor data from December 2025, which shows slower job growth but a lower unemployment rate, presents a challenge for the Federal Reserve. This suggests the Fed will likely remain cautious in its upcoming meeting. Their guidance will be crucial. This uncertainty creates a favorable situation for options traders to benefit from volatility using strategies like straddles or strangles. Market expectations for two rate cuts later in 2026 support a positive outlook for gold, as lower rates reduce the opportunity cost of holding the metal. Referring back to the 2023 and 2024 rate cycles, we noticed that market predictions for cuts were often more aggressive than what the Fed eventually implemented. Derivative traders might consider long-dated call options to take advantage of this easing trend but should remember that the timing of these cuts is uncertain. Geopolitical risks in Venezuela, Iran, and Asia keep demand for safe havens strong, providing a solid support for gold prices. A similar trend was seen in early 2022 during the Eastern Europe conflict when gold futures surged by over 5% in a month. Buying short-term, out-of-the-money call options can be a cost-effective way to prepare for a sudden price jump if any global tensions escalate in the coming weeks. From a technical perspective, gold is holding above the $4,387 moving average, indicating a bullish trend. The immediate hurdle is the $4,500 level; breaking above this could target the record high near $4,549. A bull call spread, like buying a $4,450 call and selling a $4,550 call, can be a risk-defined method to profit from potential price increases. The unexpectedly narrow US trade deficit, the smallest reported since 2009, may support the US dollar. A stronger dollar usually creates headwinds for gold, making the trading environment complex. Therefore, we should keep an eye on the U.S. Dollar Index (DXY); a rise above 104 could slow gold’s increase and prompt the use of put options to hedge long futures positions. Create your live VT Markets account and start trading now.

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