Gold is holding steady above $3,350 thanks to a weaker US Dollar. Recent US inflation data suggests that the Federal Reserve may cut interest rates in the upcoming September meeting. The Dollar Index is around 97.70, its lowest level in more than two weeks.

Inflation and Federal Reserve Expectations

The US Consumer Price Index showed that headline inflation rose as expected, with core inflation slightly above estimates. This has led to increased speculation about a Federal Reserve rate cut, which weakened the Dollar and made gold more attractive. US Treasury yields have also declined, with the 10-year yield at about 4.235% and the 30-year yield near 4.825%. Global stock markets are close to record highs, reflecting a positive market outlook. However, upcoming discussions between the US and China, as well as the US and Russia, may limit gold’s rise as investors diversify their risk. Gold continues to attract interest when prices dip, trading in the range of $3,330 to $3,360. Gold prices are influenced by geopolitical tensions, interest rate shifts, and changes in the Dollar. Typically, gold moves in the opposite direction of the Dollar and stocks, becoming more valuable during fluctuations in currency and market. Central banks, especially in emerging economies like China and India, continue to buy significant amounts of gold. With the Federal Reserve likely to cut interest rates next month, gold has a clear path ahead. A weak US Dollar and falling Treasury yields create a favorable atmosphere for precious metals. This indicates that purchasing gold derivatives on price dips is a smart strategy. Recent data indicated that large investors are positioning themselves for this trend, with last week’s Commitment of Traders report showing managed money increasing their long gold futures contracts to a six-month high. This inflow of capital supports the optimistic outlook as we approach the September Fed meeting, signaling that institutional traders expect further price increases.

Options Market Observations

In the options market, demand for call options expiring after the September meeting has surged. This increase has raised the prices of these bullish bets, indicating that traders are ready to pay more for the chance to benefit from price increases. A strategy like a bull call spread could take advantage of this anticipated rise while managing our risk. This situation is reminiscent of the Fed’s decision to reduce rates in the summer of 2019, which led to a significant rise in gold prices well before the cuts were fully anticipated. Historical trends show the weeks before the first cut in a cycle are typically very favorable for gold. We expect a similar situation to occur now. Support for the market remains strong due to ongoing demand from central banks. Data for the second quarter of 2025 revealed that the People’s Bank of China continued buying gold for 20 months straight, providing an additional layer of support. These purchases help mitigate selling pressure and stabilize prices during declines. However, we should be cautious of challenges from the soaring equity markets and upcoming geopolitical discussions. These elements could temporarily limit gold’s rise around the $3,360 resistance level. Therefore, while we remain positive, it’s sensible to prepare for some range-bound movement in the short term. Create your live VT Markets account and start trading now.

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