Gold prices remain close to historical highs due to ongoing economic and geopolitical uncertainties, currently trading around $4,635 after a recent dip. The value of gold rose more than 2.5% this week as concerns grew over the Federal Reserve’s independence and tensions in Iran. Recent economic data showed lower-than-expected core Consumer Price Index figures, helping ease worries about inflation. This suggests that the Fed might adopt a slower approach to monetary easing. Upcoming data and comments from the Fed could change monetary policy moving forward.

Analyzing Current Inflation

In the US, the headline CPI rose 0.3% monthly, with core inflation up 0.2%. These figures could impact expectations for future interest rates. Political tensions are high, especially with the US contemplating potential military actions in Iran, fueled by President Trump’s strong statements. Despite being overbought, gold’s upward trend remains. Support is around $4,600, while resistance levels are near $4,650 and $4,700. Central banks, particularly in emerging markets, continue to buy gold. Gold often moves opposite to the US dollar and treasury yields, affected chiefly by geopolitical factors and currency fluctuations. The record highs seen in 2025 were driven by geopolitical tensions and expectations of easing by the Fed. These themes are still prominent in the market as we enter 2026. Derivative traders should prepare for ongoing volatility, as these factors are firmly established in gold’s price. Central banks kept aggressively buying gold through 2025, with global net purchases exceeding 950 tonnes. This consistent demand, especially from emerging markets like China, which added over 200 tonnes, strengthens the market. This makes short positions risky, as significant dips are likely to trigger strong buying from sovereigns.

Strategic Approaches For Traders

Expectations for Fed easing that arose last year have grown complicated. The final Q4 2025 inflation reports showed core PCE hovering around 2.8%, above the Fed’s target. This has pushed market expectations for the first rate cut of 2026 from March to later in the second quarter. Traders should consider using options like straddles or strangles to take advantage of the expected increased volatility around upcoming FOMC meetings. The market is clearly in an uptrend, but overbought conditions still affect it. We saw this play out with a brief but sharp correction in November 2025, when gold dropped nearly 4% in a week before stabilizing. This pattern suggests that selling cash-secured puts or bull put spreads below key psychological levels like $4,600 could be a good strategy to collect premiums. Geopolitical risks have shifted since last year, with the Iranian situation now overshadowed by other global issues. This creates ongoing demand for gold as a safe haven. A cost-effective way to prepare for sudden flare-ups is to buy long-dated, out-of-the-money call options, offering upside potential with limited downside risk. Historically, gold performed very well after the 2008 financial crisis during times of policy uncertainty, even as risk assets recovered. The current environment feels similar, where gold’s inverse correlation to the dollar can sometimes be overridden by sovereign demand. Therefore, traders should not only watch the DXY but also keep an eye on monthly reports about central bank reserves for insights into the market’s strength. Create your live VT Markets account and start trading now.

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