**Gold’s Role as a Store of Value** Central banks are the largest holders of gold, having made record purchases of 1,136 tonnes worth $70 billion in 2022. They do this to support their currencies during uncertain times and to boost economic confidence. Gold prices tend to move in the opposite direction of the US Dollar and US Treasuries. Factors like geopolitical issues and interest rates can greatly affect gold prices. Generally, when the US Dollar weakens, gold prices rise, whereas a stronger Dollar keeps prices lower. **Monetary Policy Impact on Gold Prices** The current stability in gold prices, similar to slight shifts we noticed in SAR prices, suggests a market pause. Investors are focused on the Federal Reserve, especially after their November 2025 meeting hinted that interest rates may have peaked. Markets now expect a 60% chance of a rate cut by the end of the first quarter in 2026, which supports gold prices. This potential change in monetary policy is already putting pressure on the US Dollar, pushing the DXY index below 102 for the first time in months. While this usually benefits gold, ongoing inflation—indicated by the last Consumer Price Index report in October 2025 showing a rate of 3.1%—limits the speed at which rates may drop. This situation suggests that strategies benefiting from market volatility, like straddles, could be wise. We must consider the strong demand from central banks, a trend that has been consistent since the record purchases tracked in 2022. Recent data from the World Gold Council for the third quarter of 2025 shows that emerging market banks added another 260 tonnes to their reserves. This ongoing buying creates a solid cushion against significant price drops. Meanwhile, riskier assets are showing weakness, with the S&P 500 struggling amid lowered 2026 earnings forecasts. Geopolitical tensions, especially related to trade routes in the South China Sea, are driving investors toward safer options. This scenario makes holding long positions in gold derivatives a smart way to hedge against possible declines in the equity market. Create your live VT Markets account and start trading now.

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