Gold prices rose slightly on Tuesday, hovering around $4,615, close to the record high of $4,630. This increase followed a mixed US Consumer Price Index (CPI) report. While headline inflation met expectations, core inflation was lower, indicating the possibility of further monetary easing by the Federal Reserve. The demand for gold remains strong because of global economic and political uncertainties. Concerns about Fed Chair Jerome Powell’s investigation are raising questions about the central bank’s independence. Tensions in the US escalated when President Trump suggested a 25% tariff on countries trading with Iran, amid unrest from anti-government protests.

Investigation Into Powell’s Senate Testimony

An investigation is looking into Powell’s Senate testimony regarding the Federal Reserve’s $2.5 billion renovation project. Markets are preparing for potential changes, as Trump considers replacing Powell. Financial markets expect the Federal Reserve to cut interest rates twice this year, following positive US employment data. However, there is speculation that rates may stay steady at the Fed’s January meeting. Investment banks forecast gold prices to stay between $4,500 and $5,000 per ounce until 2026, influenced by possible Fed rate cuts and geopolitical concerns. Technical analysis shows that gold is currently overbought, yet prices find support from moving averages and momentum indicators. Gold is often seen as a safeguard against inflation and currency devaluation. It typically moves oppositely to the US Dollar and risky assets. Central banks, especially in emerging economies, are significantly increasing their gold reserves to bolster economic stability.

Gold Market Dynamics And Strategies

In the current market situation, the main trend for gold appears strongly bullish. This is due to expectations of Federal Reserve easing and political uncertainty. The investigation into Fed Chair Powell and Trump’s possible influence on his replacement is likely to keep implied volatility high. Traders should consider strategies that capitalize on this situation, such as buying call options to benefit from potential price increases while managing risks. The long-term outlook for gold is solid. We saw remarkable central bank purchases in 2023 and 2024, with the World Gold Council reporting over 1,000 tonnes bought each year, continuing to absorb supply. This, along with ongoing worries about the US national debt exceeding $35 trillion, creates a strong demand for gold. While the trend is upward, the Relative Strength Index (RSI) indicates overbought conditions. It might be unwise to chase the market at these record highs. A cautious approach would be to look for buying opportunities during pullbacks toward the 21-period moving average around $4,535. For derivative traders, this may mean entering bull call spreads or purchasing outright calls during dips, anticipating further price increases. The upcoming calendar is filled with events that could create short-term trading opportunities. The Supreme Court’s upcoming decision on tariffs and the hearing regarding Fed Governor Cook’s removal will likely bring more volatility to the market. We believe these events, along with ongoing geopolitical tensions with Iran, will maintain strong safe-haven demand in the coming weeks. Create your live VT Markets account and start trading now.

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