US Federal Reserve Action

The US Federal Reserve has lowered interest rates by 25 basis points, setting the federal funds rate to a range between 3.50% and 3.75%. Most Fed officials support more cuts if inflation decreases, but their views on timing and amount differ. There was a slight drop in the likelihood of a rate cut in January. Technical indicators suggest a positive outlook for gold. The 100-day EMA and expanding Bollinger Bands point to upward momentum. Resistance is at $4,520, with further gains possibly reaching $4,550 or $4,600. Support is in the range of $4,305 to $4,300. The Fed changes interest rates to ensure price stability and full employment, which can affect the US Dollar. They use tools like Quantitative Easing and Tightening to manage the economy and influence the dollar’s value. The Federal Reserve has started its easing cycle with a rate cut in December 2025, responding to clear signs of an economy slowing down. Recent reports show that annual inflation has dropped to 2.8%, much lower than previous highs, leading the market to expect further cuts in 2026. This shift in monetary policy supports gold, making it a more appealing asset.

Gold Market Strategies

Gold is gaining momentum, having increased by 65% in 2025, far outperforming major stock indices like the S&P 500, which only gained 8% during the same time. Ongoing geopolitical tensions are providing solid support for gold prices. We should consider strategies that benefit from further increases, such as buying call options for February and March 2026 contracts. This approach lets us participate in the rally while managing our risk. However, we need to be cautious of higher margin requirements from the CME. These make it more expensive to maintain long futures positions, which could lead to profit-taking. Historically, sharp price increases, like those in 1979, often result in increased volatility and quick corrections. Thus, we should prepare for potential pullbacks by considering protective put options below key support levels like $4,300. The recent division in the last FOMC vote indicates uncertainty, which is keeping implied volatility in gold options high. The Cboe Gold ETF Volatility Index (GVZ) is around 19, its highest in months, making it attractive to sell options premium. We could consider selling cash-secured puts at lower strike prices or using covered calls on existing long positions to generate income. Recent jobless claims came in slightly higher than expected at 225,000, supporting the idea of a softening labor market, which gives the Fed room to cut rates further. Additionally, the latest Commitment of Traders report from the CFTC shows that speculative funds have their largest net-long position in three years. This heavy positioning could speed up a sell-off if news turns negative, so it’s crucial to set tight stop-losses on any new long trades. Create your live VT Markets account and start trading now.

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