Gold has made a comeback, with XAU/USD now trading at $4,615. This rebound is mainly due to a weaker US Dollar and increased tensions in Iran. Even though the latest inflation data from the US is firm, many are expecting the Federal Reserve to keep interest rates steady. As concerns grow about geopolitical issues, traders are shifting their focus towards gold. The Producer Price Index (PPI) report for October shows that US producer prices are still far from the Fed’s 2% target. Additionally, US Retail Sales exceeded expectations, indicating more consumer spending. Speculation is also rising regarding possible US military action in Iran.

Dollar Weakness Boosts Gold

The US Dollar Index dipped by 0.04% to 99.15, which helped gold prices rise. The yield on the 10-year US Treasury fell by three-and-a-half basis points to 4.14%. In November, the PPI increased by 0.2% from the previous month, matching predictions, while the core PPI dropped to 0%. Gold’s price rose to $4,643 but might face resistance near $4,650. Its future performance will depend on maintaining this upward momentum. If gold falls below $4,600, it could retreat to lower support levels. Gold is a favored investment because it acts as a stable store of value during uncertain times. Central banks, especially in emerging markets, are significant buyers. Gold’s value tends to go up when the US Dollar and Treasury yields decline. Given gold’s strong movement above $4,600, the current climate appears good for bullish trading strategies. The combination of a weaker US dollar and rising tensions with Iran, highlighted by increased naval activity in the Strait of Hormuz, is driving strong demand for safe-haven assets. This situation suggests that buying call options or setting up bull call spreads targeting $4,700 might be a smart strategy in the weeks ahead.

Federal Reserve Expectations Affecting Gold

The market believes that the Federal Reserve will cut rates in 2026, which is a key factor behind gold’s current strength, even in light of robust retail sales numbers from late 2025. The CME FedWatch Tool indicates a 75% chance of a rate cut at the March meeting, a notable rise driven by disappointing jobs data from December 2025. This supports the idea that holding non-yielding assets like gold has a lower opportunity cost. The Relative Strength Index (RSI) is nearing overbought territory, so it’s wise to brace for possible pullbacks. Selling cash-secured puts with a strike price around the $4,550 support level could allow for premium collection while setting up a potential entry point if the price dips. This method benefits from the high implied volatility linked to geopolitical risks. Reviewing economic data from late 2025, particularly stubborn PPI figures from November, presents a mixed picture for the Fed. However, the market seems to be focusing on dovish statements from officials like Governor Miran. This selective attention strengthens the momentum behind gold as traders prioritize potential future easing over past inflation data. This situation is similar to the market dynamics during the 2020 quantitative easing cycle, where demand for safe-haven assets and expansionary monetary policies fueled a sustained rally. Historical trends indicate that during such periods, gold’s price increases can last longer than initial technical indicators might suggest. Thus, we should view any short-term declines as buying opportunities rather than as signs of trend reversals. Create your live VT Markets account and start trading now.

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