Gold prices have reached an all-time high of around $4,300 during Asian trading hours. This surge comes as traders anticipate possible interest rate cuts by the US Federal Reserve. Reports of softer inflation and a slower job market in the US are the main reasons for this expectation. Lower interest rates generally favor non-yielding assets like gold, as they lower the cost of holding those assets. Additionally, ongoing geopolitical tensions, such as the Israel-Iran conflict and increased US-Venezuela tensions, are driving demand for gold as a safe haven. As we approach the holiday season, trading activity may slow down, with traders likely taking profits. Key upcoming reports include the US Chicago Fed National Activity Index and the preliminary GDP reading for Q3.

Major Gold Holders

Gold remains strong, staying above the important 100-period Exponential Moving Average despite market ups and downs. The next resistance level is at $4,381, and a breakout above this could push prices toward $4,400. However, if prices drop below $4,337, it may lead to increased selling. Central banks in countries like China, India, and Turkey are significant gold holders and added 1,136 tonnes to their reserves in 2022. Gold prices usually rise when the US Dollar weakens and during times of geopolitical unrest. As we near the year’s end, gold continues to hit historical highs around $4,300. This rise is linked to expectations of continued interest rate cuts by the Federal Reserve, similar to the policy changes seen in late 2023. Lower rates make holding non-yielding gold more appealing for investors. Geopolitical risks, such as tensions between Israel and Iran, and the US and Venezuela, are boosting support for gold. This demand isn’t just from traders; central banks have been buying heavily, adding over 1,000 tonnes in both 2022 and 2023. This strong institutional demand provides solid support for gold prices.

Market Indicators and Trading Strategies

With holidays approaching, we can expect lighter trading volumes and some profit-taking that may limit price increases. For those with long positions, now could be a good time to use options to safeguard profits, such as purchasing put options for protection. This strategy allows investors to maintain their bullish stance while minimizing risks from any short-term declines. The conversation about rate cuts is fueled by softer US inflation, job data, and weak consumer sentiment. However, the CME FedWatch tool indicates only a 21% chance for a cut in January after three reductions. This suggests the market thinks the Fed may hold steady, leading to uncertainty that options traders can exploit with strategies like straddles or strangles. From a technical perspective, the immediate challenge is the previous high of $4,381. A breakout here might quickly push gold to the $4,400 level. Call option buyers will be looking for increased trading volume if resistance is broken. On the other hand, if prices fall below the recent low of $4,337, it could indicate a deeper correction, creating possible entry points for short-term puts targeting around $4,253. Create your live VT Markets account and start trading now.

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