Gold prices dropped 1.7% to $4,250 per troy ounce on Friday, according to Commerzbank’s analyst, Carsten Fritsch. This fall came after US President Trump suggested that he would negotiate the extra 100% import tariffs on Chinese goods, which he called unsustainable. Before this, gold prices had nearly reached $4,380, hitting a new record high. The recent decline brought the weekly gain down to 5.8%, following a sharper increase six months ago amid tariff tensions.

Historic Weekly Surge

The recent weekly surge was the strongest since the Lehman Brothers collapse in September 2008. This year, gold prices have increased over 60%, marking the largest annual rise since 1979 when geopolitical tensions and high US inflation caused the price to double. Back then, the price peaked at $850 in January 1980, remaining unmatched until 2008. Even when adjusting for inflation using the US consumer price index, the 1980 peak has now been surpassed. This year is particularly significant for gold prices. The FXStreet Insights Team includes journalists who gather market insights from experts and offer additional analysis. Their content presents perspectives from both commercial sources and various analysts. The recent drop from a record high of nearly $4,380 to $4,250 per ounce highlights how sensitive the market is to geopolitical news. The market’s strong reaction to comments about US-China tariffs indicates that volatility will stay high. Thus, options strategies that profit from large price swings, regardless of direction, may be beneficial.

Volatility and Investment Strategies

A weekly gain of 5.8% confirms the extreme volatility we are experiencing. Recent exchange data shows that open interest in call options for the upcoming months has reached a multi-year high, suggesting many traders still expect further price increases. This makes buying options spreads, like bull call or bear put spreads, a smart way to manage high premium costs while taking a position on price direction. We shouldn’t overlook that gold has risen more than 60% since the start of the year, a rally not seen since the inflation spikes of 1979. This substantial movement is backed by recent economic data showing that headline inflation remained stubbornly at 7.2% in September 2025, boosting demand for tangible assets like gold. This underlying pressure suggests that significant price dips may be seen as buying opportunities. Further supporting the positive outlook, there is strong institutional demand for gold. A report from last month revealed that central banks bought a record amount in the third quarter of 2025, as many countries continue to move away from the dollar. This consistent demand provides a strong support base for the price, potentially cushioning it against politically motivated sell-offs. However, Friday’s sharp price drop serves as a clear reminder that the market is also susceptible to sudden reversals on any positive trade news. The immediate 1.7% decline due to mere talks of negotiations shows the need for caution. Thus, holding some out-of-the-money put options could be a valuable and cost-effective hedge against a quick easing in the trade tensions. Create your live VT Markets account and start trading now.

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