Gold is holding steady as traders anticipate the Federal Reserve’s interest rate decision. Currently, XAU/USD is around $4,200, facing resistance at $4,250 and support between $4,180 and $4,200. The CME FedWatch Tool shows a 90% chance of a 25 basis point rate cut, bringing rates to a range of 3.50%-3.75%. However, there’s still uncertainty about future guidance. Fed Chair Jerome Powell has stated that there are no guarantees for further rate cuts. Additionally, uncertainty is rising due to disagreements within the Fed about inflation risks and signs of a slowing labor market. Geopolitical tensions, like the situation between Russia and Ukraine, are also increasing Gold’s appeal as a safe-haven asset. Gold prices are affected by the US Dollar’s performance, geopolitical instability, and interest rates. Typically, Gold and the US Dollar move in opposite directions, with Gold generally increasing when rates are low. Central banks continue to hold significant Gold reserves, diversifying to stabilize their currencies. Data from 2022 shows record purchases by several emerging economies. With the Federal Reserve’s rate decision coming tomorrow, Gold is steady in a narrow range. The market has almost fully accounted for a 25 basis point cut, so the actual cut probably won’t lead to a big price shift. The main focus will be on guidance for 2026 and any signs of a “hawkish cut.” Given the current uncertainty, making large bets ahead of the announcement is risky. Instead, we should explore strategies that benefit from significant price movements, regardless of direction. Options strategies like a long straddle or strangle might work well, as they can profit from the increased volatility we expect after the Fed speaks. A hawkish surprise is possible, especially with recent economic data showing some strength. The latest CPI report from November indicated core inflation at 3.8%, still above the Fed’s target. This persistent inflation, paired with strong JOLTS job openings data from October, gives Powell reasons to be cautious about future cuts. Key levels to watch are strong resistance at $4,250 and solid support between $4,180 and $4,200. If the price breaks these boundaries after the announcement, it will indicate the market’s next direction. We could set up options trades with strike prices around these levels to capture potential breakouts. If the Fed’s guidance is more dovish than expected, we might see a breakout above $4,250, making call options appealing. On the other hand, if the Fed takes a hawkish stance and signals a pause, the price could drop below the $4,180 support level, favoring put options. A similar situation occurred in July 2019 when the Fed cut rates but indicated it wasn’t the beginning of a long easing cycle, leading to initial market confusion and volatility. Underlying all this is the strong support for Gold due to central bank buying. Throughout this year, the World Gold Council data shows that central banks have added over 850 tonnes to their reserves. This ongoing demand, along with unresolved geopolitical tensions in Ukraine, should help support Gold prices and limit potential downside, even if the Fed’s message is hawkish.

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