Gold prices have reached about $4,235 during the early Asian trading session. This rise comes after the US Federal Reserve decided to cut rates by 25 basis points, with only one more reduction expected in 2026. Traders are now looking forward to the US weekly Initial Jobless Claims report. The Fed’s cut has lowered the key lending rate to a three-year low of 3.50% to 3.75%. Chair Jerome Powell mentioned a cautious approach to assess the effects of this year’s cuts. There is nearly a 78% chance that the Fed will keep rates steady next month. Geopolitical factors, like President Trump’s proposal to Ukrainian President Zelensky, could influence Gold’s appeal as a safe haven. Any advancements in the Ukraine peace deal might lessen Gold’s traditional attraction in the short term. Gold is widely regarded as a valuable asset and a safeguard against inflation. Central banks hold a vast amount of Gold and have significantly increased their reserves. Gold prices are affected by the value of the US Dollar, interest rates, and geopolitical situations. These changes highlight Gold’s ongoing role as a financial safety net. With Gold climbing to $4,235, the market is heavily responding to the Fed’s third consecutive rate cut. This shift in policy provides strong support for Gold. The reduced interest rates lower the opportunity cost of holding non-yielding Gold, making it more appealing. The Fed’s key rate now stands at a three-year low of 3.50%-3.75%, a major decrease from over 5% in late 2023. This decision followed recent data showing US inflation dropping to 2.8%, while weekly jobless claims slightly increased to 235,000, indicating a softening economy. Markets are now anticipating a high chance of rate stability in January, suggesting that the immediate benefits from rate cuts may be running out. Yet, a significant geopolitical event is causing uncertainty in the next two weeks. The Christmas deadline for a possible Ukraine peace deal poses a substantial risk for Gold prices. If a deal is reached, there could be a swift sell-off as the demand for safe-haven assets decreases. For those trading derivatives, this creates a typical volatility scenario before year-end. The tension between supportive monetary policy and a major bearish geopolitical event means that options strategies could be useful. Buying put options might be an effective way to guard against a sudden price drop if a peace deal is announced. This short-term risk contrasts with strong long-term support from central banks, which have been aggressive buyers for years. In 2022, they added a record 1,136 tonnes to their reserves, creating a solid support level for Gold prices. This consistent demand suggests that any significant dip could be seen as a buying opportunity by major investors. Considering the high price and the upcoming peace deal deadline, we should brace for increased volatility. Implementing a long straddle strategy—buying both a call and a put option at the same strike price and expiration—could allow for profit from a large price movement in either direction. In the coming days, the focus should be on geopolitical news, as it will likely be the most significant driver for Gold prices.

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