Gold (XAU/USD) fell to about $4,863 on Tuesday, down 2.50% and near a two-week low. Thin holiday trading kept prices below $5,000. Lunar New Year closures have reduced liquidity. Chinese markets reopen next Tuesday, and US volumes should improve after Presidents’ Day.
The US Dollar strengthened and Treasury yields rose, which pushed gold lower. The US Dollar Index was near 97.44, up about 0.37%.
Market Drivers And Current Positioning
US data was mixed. The NY Empire State Manufacturing Index rose to 7.1 in February (6.0 expected), but it was slightly below the prior 7.7. The ADP Employment Change four-week average increased to 10.3K, up from a revised 7.8K.
After recent data, rate-cut expectations shifted. Traders now price almost 60 basis points of easing this year, with the first cut possibly in June, according to CME FedWatch. Geopolitical risk also stayed in focus after a second round of US-Iran nuclear talks in Geneva and reports of Iranian Revolutionary Guard drills in the Strait of Hormuz.
On the 4-hour chart, price is below the 100-period SMA. Support is near $4,900, with lower levels at $4,800 and $4,700. Resistance is at $5,021, then $5,050–$5,100. MACD is negative and RSI is 39.
This looks similar to what happened around this time in 2025, when gold dropped below $5,000. Then, as now, the main pressure came from a stronger US Dollar, which tends to weigh on gold. Last year’s dip showed how sensitive gold is to changes in expectations for Federal Reserve rate cuts.
Now, those expectations are shifting again because inflation remains sticky. The latest Consumer Price Index showed prices up 3.1% year over year, above expectations. This has led markets to rethink when the Fed might make its first cut. The CME FedWatch Tool now shows the chance of a rate cut by May 2026 has fallen below 40%, a major change from a month ago.
Options Positioning And Risk Management
The “higher for longer” rate story is pushing the US Dollar Index (DXY) to about 104.3, well above the 97.4 level seen during the 2025 downturn. A stronger dollar makes gold more expensive for overseas buyers and is a major headwind. For derivatives traders, this setup points to possible short-term weakness.
With that in mind, buying put options with strike prices below $5,100 could be a sensible approach. This can benefit from a drop back toward the psychological $5,000 level, without the unlimited risk that comes with shorting futures. The $5,050 level is key. A break below it could trigger more selling.
At the same time, ongoing Middle East risks can help support gold prices. Buying cheap, out-of-the-money call options can hedge against a sudden escalation that could drive safe-haven demand. This creates a more balanced position and helps protect against surprise shocks.
With uncertainty ahead of upcoming inflation data and Fed messaging, it may also make sense to use strategies that benefit from volatility. A long straddle—buying both a call and a put with the same strike and expiry—can work well. It can profit if gold makes a large move in either direction in the coming weeks.
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