Gold prices rose slightly during Asian trading hours, recovering from a 4.5% drop—the largest one-day loss since October. This increase was driven by demand for safe-haven assets, following higher margin requirements for gold and silver futures set by the Chicago Mercantile Exchange, which led to profit-taking and portfolio adjustments. The possibility of the Federal Reserve cutting rates by 2026 may also support gold prices, reducing the cost of holding non-yielding assets.

Global Economic Uncertainty and Geopolitical Tensions

Uncertainty in the global economy and geopolitical issues continue to make gold an attractive safe-haven investment. With the New Year holidays coming, trading volumes are expected to stay low as traders wait for insights from the Federal Open Market Committee minutes. There’s a 16.1% chance of interest rate cuts by the Fed in January. Gold remains in a positive position above the 100-day Exponential Moving Average, but the short-term Relative Strength Index suggests it may consolidate. Immediate resistance is at $4,520, while initial support is in the $4,305-$4,300 range, with further declines potentially targeting $4,271. Central banks are eager to purchase gold to enhance economic stability, having added a record 1,136 tonnes to their reserves in 2022. Gold prices often move in the opposite direction of the US Dollar and US Treasuries, reacting to geopolitical instability and interest rates. After yesterday’s significant drop of 4.5% due to raised margin requirements by the CME, gold is finding support above $4,350, indicating underlying strength. With holiday trading volumes remaining low, we anticipate moderate fluctuations in the short term.

Inflation and Federal Reserve Rate Cuts

Reflecting on the November 2025 CPI report, inflation came in at 3.4%, slightly above expectations, highlighting its persistence. We believe the Federal Reserve will need to cut rates in 2026 to maintain economic growth. This situation, characterized by ongoing inflation and the potential for lower rates, is fundamentally beneficial for gold. We observe a pattern similar to 2022 when central banks purchased a record 1,136 tonnes of gold. The latest Q3 2025 data from the World Gold Council indicates strong net purchases, with over 250 tonnes added to reserves. This steady buying creates a solid support level for prices, limiting significant declines. Given this environment, we view the recent price dip as an opportunity to buy, particularly in the options market. We plan to buy call options with strike prices above the immediate resistance of $4,520, aiming for a move towards previous highs. This strategy allows us to manage our risk before the FOMC minutes, which may trigger the next major market movement. However, we must remain cautious until the FOMC minutes are released later today. Strong pending home sales data from November could indicate that the Fed may adopt a “higher for longer” approach, which would negatively impact gold in the short term. If prices fall below the $4,300 support level, we will consider protective put options or reducing our bullish positions. Create your live VT Markets account and start trading now.

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