Gold’s price has risen almost 22% this month due to worries about US economic policies and escalating geopolitical tensions with Iran and Russia. The US Dollar Index has stabilized at around 96.24, but it previously fell to a four-year low of 95.56.

Technical Analysis Indicates a Bullish Trend

Technically, gold shows a bullish trend, with momentum indicators like the RSI suggesting overbought conditions. Key support levels are at $5,150 and $5,000. If gold breaks above $5,300, it could aim for targets of $5,400 and $5,500. The Fed’s monetary policy influences gold prices through interest rate changes. The Fed holds eight meetings each year to evaluate the economy and set policies. In tough financial times, it might use Quantitative Easing to increase money flow, which can weaken the US dollar, or Quantitative Tightening, which may strengthen it. Gold is trading near record highs, but tension looms ahead of the Fed’s decision later today. While the bullish trend remains strong, the Relative Strength Index is highly overbought at 87, which could hint at a sharp downturn if there’s a hawkish surprise. Recent inflation data shows that the Consumer Price Index for December 2025 cooled to 3.1%, giving the Fed room for a slower easing approach. The ongoing decline of the US Dollar is a major factor driving gold’s rise, a trend that the administration openly supports. The US Dollar Index stands around 96.24, testing crucial support levels not seen since mid-2022, before the last significant tightening cycle. This political pressure on the dollar is changing how we view traditional safe-haven assets.

Investment Strategies for Gold

Given the high RSI reading and uncertainty, buying outright calls can be expensive and risky. We recommend a more careful approach: using bull call spreads. For instance, purchasing a February $5,300 call while selling a $5,500 call can help control premium costs and still capture potential gains. Implied volatility in near-term gold options has surged to over 25, making spreads an attractive risk management strategy. For those holding long positions or anticipating a pullback, buying put options with a strike price below the $5,150 support level offers a hedge. A cautious statement from Chair Powell could trigger profit-taking, and last month’s Non-Farm Payrolls report, which indicated job growth slowing to 155,000, supports a less aggressive policy. A drop below the $5,000 psychological level would suggest that a significant short-term peak has been reached. Looking beyond today’s Fed meeting, we must remember the strong demand from central banks and exchange-traded funds. Recent data from the World Gold Council reports that net inflows into gold-backed ETFs increased in the first few weeks of January 2026, adding 35 tonnes globally. These inflows, coupled with ongoing geopolitical tensions, provide strong support for gold prices. Create your live VT Markets account and start trading now.

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