Gold Prices as a Safe Haven Asset Central banks are significant buyers of gold, using it to strengthen their reserves and boost trust in their currencies. In 2022, they purchased 1,136 tonnes of gold, valued at around $70 billion, making it the highest annual purchase ever recorded. Gold prices change based on global events and often move oppositely to the US Dollar and US Treasuries. Economic factors such as geopolitical stability and interest rates can also impact its value. When the US Dollar weakens, gold prices usually rise, while a strong Dollar can lower its price. Currently, gold prices are stable, suggesting a calm period before potential market shifts in the new year. Trading activity is typically lighter during this holiday week, meaning unexpected news could cause sharp price movements. This low trading volume indicates that strategies looking to benefit from increased volatility may be worthwhile. Impact of US Federal Reserve Policies We are closely monitoring the US Federal Reserve, which has adopted a cautious approach following the November 2025 inflation rate of 2.8%, slightly below their target. This has pushed the US Dollar Index (DXY) below 100, a level not seen in over a year, which is generally positive for gold. Traders may consider long-dated call options to prepare for a possible price rise if the market anticipates further rate cuts in 2026. Gold continues to have strong support due to ongoing purchases by central banks. Following record buying in 2022 and 2023, the World Gold Council reported that Q3 2025 added another 250 tonnes to global reserves. This steady demand from official sources establishes a solid price base, making aggressive short-selling a risky strategy. However, we must also consider the strength of equity markets, which are currently experiencing a typical year-end “Santa Claus rally.” This positive market sentiment, seen in late 2024, can temporarily shift funds away from safe-haven assets like gold. Acquiring short-term put options could be a tactical way to hedge against continued strength in the stock market into January. Given these factors, the main strategy for the coming weeks appears to focus on volatility rather than a specific price direction. Ongoing geopolitical uncertainty acts as a supportive force, suggesting that substantial price drops will likely attract buyers. Therefore, strategies like bull call spreads or selling out-of-the-money puts could provide a balanced risk-reward profile as we move into 2026. Create your live VT Markets account and start trading now.

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