Gold prices dropped on Thursday after US President Trump softened his tough stance on Iran. Additionally, positive US jobs data lowered expectations for interest rate cuts by the Federal Reserve. XAU/USD was trading at $4,609. Investor confidence improved as global stock markets rebounded and Trump chose not to take military action against Iran. He mentioned that he will keep an eye on the situation instead.

Fed Chair Jerome Powell

Despite an ongoing investigation into renovations at Federal Reserve buildings, Trump has stated he will not fire Fed Chair Jerome Powell. Recent jobless claims show that the economy is stable. Market experts had expected 47 basis points worth of rate cuts by the end of the year. Earlier Thursday, Fed officials, including Regional Presidents Raphael Bostic and Austan Goolsbee, made comments about the economy. Upcoming US reports will include Industrial Production and speeches from Fed Governors Michelle Bowman and Philip Jefferson. The US Dollar Index reached a yearly high, indicating a strong dollar. Recent manufacturing reports from the New York and Philadelphia Fed Banks show increased activity. Gold prices are still rising but have recently pulled back. To maintain a bullish trend, XAU/USD must go beyond previous highs. Gold is often seen as a safe haven and is affected by geopolitical issues and economic factors. Central banks added 1,136 tonnes to their reserves in 2022.

Derivative Traders Strategy

With the decline in gold prices, derivative traders see a new opportunity. The lower geopolitical tensions, similar to the situation with Iran in January 2025, lessen gold’s appeal as a safe haven. This situation could mean selling short-dated call options above the recent high of $4,643 may be a wise move to earn premium. The main challenge for gold now is strong US economic data, which is leading to a reassessment of potential Fed rate cuts. The most recent Non-Farm Payrolls report for December 2025 showed a healthy addition of 195,000 jobs, and the latest Consumer Price Index data came in higher than expected at 3.4%. This supports a more aggressive outlook from Fed officials suggesting current policies aren’t overly strict. Consequently, market expectations for a rate cut in March have dropped significantly. The CME FedWatch tool now shows less than a 40% chance of a cut, down from over 70% just two weeks earlier. For traders, this situation supports buying put options or setting up bear put spreads to protect against a potential decline toward the $4,569 support level. It’s also important to consider the consistent interest from institutional players. In 2025, central banks significantly increased their buying, adding over 1,000 tonnes to global reserves, which helps provide a long-term price floor. This implies that if prices dip below the $4,500 mark, strong buying interest may emerge. The US Dollar Index (DXY) has jumped to a new yearly high, currently around 104.50, putting additional pressure on gold. If the dollar continues to rise due to strong economic performance, gold’s upward trend may be challenged. Thus, we are closely monitoring the $4,569 level; if it breaks, it could indicate a deeper correction. Create your live VT Markets account and start trading now.

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