Gold prices are close to record highs, around $4,642, driven by economic and geopolitical uncertainties. Currently, Gold (XAU/USD) is slightly lower at $4,610, supported by ongoing demand for safe-haven assets due to factors like concerns about the Federal Reserve and unrest in Iran.

Reasons for the Gold Surge

Several factors have led to a nearly 2.5% rise in gold prices this week. Easing inflation in the US has increased hopes that the Federal Reserve might gradually change its monetary policy. Recent data showed that core CPI rose less than expected, reinforcing these expectations. The markets are paying close attention to US economic indicators, like a 0.2% month-over-month rise in the headline PPI and a 0.6% increase in Retail Sales. Core PPI and CPI results fell below predictions, with the core inflation annual rate at 2.6%. These figures are shaping discussions on potential interest rate cuts amid ongoing uncertainties, including the possibility of US military action in Iran. Technically, gold is on an upward trend, but caution is necessary due to overbought conditions. The Relative Strength Index (RSI) and Average Directional Index indicate continued strength, with near-term support at $4,600 and resistance at $4,650. Gold is holding close to its all-time high of $4,642, driven by growing geopolitical and economic fears seen since late 2025. While the uptrend seems fundamentally strong, the overbought RSI near 71 suggests this rally might be reaching its peak, indicating a possible risk of a quick pullback below $4,500 in the coming weeks.

Gold Trading Strategies

The soft core CPI data from December, which boosted this rally, is now being questioned by last week’s non-farm payrolls report showing 215,000 new jobs created. This strength might delay the Federal Reserve’s expected rate cuts, which could take away critical support for gold. As a result, buying out-of-the-money puts with February expiration dates could be a smart way to protect long positions against potential price corrections. Implied volatility for gold options is rising, with the CBOE Gold Volatility Index (GVZ) above 25, making long options strategies expensive. Historically, when the daily RSI for gold stayed above 70 for a long time—as it did in August 2020—it led to consolidation, not an immediate crash. Traders may want to consider selling cash-secured puts below key support levels like $4,433 or using bull call spreads to profit from more modest price increases while managing risks. Current tensions with Iran could push gold prices even higher, despite the overbought indicators. This uncertainty makes directional bets risky but enhances the attractiveness of long volatility strategies. Buying a February straddle—purchasing both a call and a put at the same strike price—could effectively position traders to benefit from significant price movements, regardless of direction. Create your live VT Markets account and start trading now.

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