Gold prices have decreased to around $5,250 from a record high of $5,311. The precious metal saw an eight-day rise before the decline, as traders prepared for the U.S. Federal Reserve’s upcoming policy decision.

Federal Reserve’s Policy Expectations

The Fed is likely to keep interest rates between 3.50% and 3.75% and may signal steady policies even with calls to lower rates. There is also speculation about President Trump’s possible announcement regarding the new Fed Chair, impacting market activity. Analysis shows the XAU/USD trend is still positive, despite a small pullback. The Moving Average Convergence Divergence (MACD) indicator remains bullish, but it shows a decrease in upward momentum. The Relative Strength Index (RSI) suggests a possible correction is coming. Resistance is at $5,311, with targets of $5,455 next. Support levels are expected around $5,100 and then $5,000. Gold is seen as a safe investment during uncertain times and as a way to protect against inflation and currency decline. Central banks, especially in China, India, and Turkey, are the biggest gold buyers, with an addition of 1,136 tonnes in 2022. Gold prices are affected by geopolitical conflict, interest rates, and the strength of the U.S. Dollar. With gold pulling back slightly from its peak of $5,311, this pause may happen before the Fed’s policy announcement. The eight-day rally has made the market feel a bit stretched, indicating that traders should be cautious about buying more long positions until the Fed gives more information. This pullback towards $5,250 is an important moment to see if the positive momentum can continue. For those optimistic about gold, this dip could be a good time to buy call options at a lower price. We’re monitoring the previous high around $5,100 as a key support point for starting new long positions. Given the strong trend, using bull call spreads could be a smart way to manage costs while aiming for future resistance near $5,455.

Gold Investment Strategies

However, we should pay attention to the overbought signals, especially the high RSI reading, which often comes before corrections. Wise traders might think about buying protective put options to shield existing long positions from sudden drops. If the Fed hints at a stricter approach, a quick drop to the $5,000 level could occur. The upward trend is backed by strong demand, evident over the past year. In the final quarter of 2025, central bank demand remained very strong, with the World Gold Council reporting an additional 220 tonnes of net purchases from emerging markets. This consistent buying helps support the market and reduces the chances of a sharp decline. The wider economic landscape is also good for gold, reinforcing its role as an inflation hedge. The final Consumer Price Index (CPI) figures for December 2025 showed a stubborn 3.2%, increasing pressure on the Fed and diminishing the value of fiat currencies. This ongoing inflation makes holding a non-yielding asset like gold more appealing for institutional investors. Considering the high potential volatility around the Fed’s announcement, simply buying options can be costly. We believe using option spreads is the best strategy for the coming weeks. A bull call spread could take advantage of further price increases while defining risk, while a bear put spread could benefit from a short-term downturn without the high cost of an outright long put. Create your live VT Markets account and start trading now.

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