Gold prices jumped sharply during early Wednesday in Europe, driven by expectations for US interest rate cuts and ongoing geopolitical tensions. The price surpassed $4,350, showing a remarkable 65% increase this year, the largest annual rise since 1979. This increase is fueled by anticipated US interest rate cuts in 2026, which could make holding gold less costly. Geopolitical issues like the tensions between Israel and Iran, and the disputes between the US and Venezuela, may increase demand for gold. Investors often buy gold as a safe option during uncertain times. However, higher margin requirements from the CME Group and advancements in Ukraine peace talks could lead to profit-taking, which might limit gold’s gains.

US Initial Jobless Claims Data

We are awaiting the US Initial Jobless Claims data, which is expected to rise to 220,000 from the previous week’s 214,000. Thin trading volumes are anticipated as we approach the New Year holidays. Gold continues to show an upward trend, with clear support and potential resistance levels. The positive outlook remains strong, with prices staying above the 100-day EMA and the RSI showing robust momentum. Currency trends shift between “risk-on” and “risk-off” markets. In “risk-on” periods, currencies that rely on commodity exports, such as the AUD, CAD, and NZD, tend to perform well. Conversely, during “risk-off” phases, the USD, JPY, and CHF, seen as safer options, typically rise. Gold has experienced an incredible 65% surge this year, thanks to the Federal Reserve’s accommodative stance that began in the third quarter of 2025. The recent dot plot from December’s FOMC meeting suggests at least two rate cuts in the first half of 2026, boosting the attractiveness of non-yielding gold. This climate diminishes the opportunity cost of holding gold, making it a prime investment as we enter the new year. Geopolitical uncertainty also supports gold prices, creating a solid baseline. We are monitoring the ongoing tensions between Israel and Iran, and the recent escalation in the US-Venezuela conflict over the Essequibo region. Historically, gold has responded positively to such instability, similar to its reaction during the early Ukraine conflict in 2022.

Buying Call Options on Gold Futures

With the strong upward momentum, we recommend buying call options on gold futures for February or March 2026 to capitalize on further gains towards the $4,550 all-time high. However, the Relative Strength Index (RSI) recently showed a reading of 78, signaling overbought conditions. It’s wise to purchase protective put options to hedge against potential short-term pullbacks. This strategy allows participation in the upside while managing risk if holiday profit-taking occurs. We should remain cautious about potential challenges that may limit this rally in the near term. The CME Group’s 5% increase in margin requirements for gold futures, effective January 2nd, could lead to liquidation from leveraged traders. Additionally, any definite news regarding peace in Ukraine could quickly shift market sentiment back to “risk-on.” This “risk-off” environment that supports gold also creates opportunities in the currency markets. We expect safe-haven currencies to stay strong, suggesting long positions in the Swiss Franc (CHF) and Japanese Yen (JPY) against commodity currencies like the Australian Dollar (AUD) are advantageous. If gold’s fortunes reverse, possibly due to a peace agreement, these trades could unwind swiftly. Create your live VT Markets account and start trading now.

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