Gold prices climbed to around $4,230, nearing a six-week peak during early trading in Asia. This rise is driven by expectations of potential US interest rate cuts, fueled by disappointing economic data showing a decline to 48.2 in the US Manufacturing PMI for November. The CME FedWatch tool indicates an 87% chance of a rate cut this December. If rates go down, the cost of holding Gold becomes less appealing, which could help the metal’s value. However, high Gold prices in China are reducing local demand, which might negatively impact Gold prices.

US Macroeconomic Releases

This week’s US economic reports could influence demand for the dollar and affect Gold’s price movements. Key reports like the US ADP Employment Change and ISM Services PMI will be released before the inflation data from the Personal Consumption Expenditures Price Index. Gold is often seen as a safe investment, a means of exchange, and a hedge against inflation. Central banks, which are the biggest Gold holders, added 1,136 tonnes in 2022. Gold typically increases when the Dollar loses value and during times of global uncertainty. However, since Gold doesn’t earn interest, its price often drops when interest rates rise. With Gold hitting a six-week high around $4,230, this is clearly linked to a weakening US economy. The US Manufacturing PMI has now declined for nine consecutive months, reaching 48.2, reinforcing our expectations for a Federal Reserve rate cut. The market anticipates an 87% chance of a cut this December, which reduces the cost of holding Gold. This scenario resembles what we saw in late 2023 when the Fed indicated a more relaxed monetary policy. That change led to a major Gold rally into 2024, serving as a historical example for the current market conditions. We believe we’re witnessing a similar trend as economic data continues to show weakness.

Trading Strategies

For traders dealing in derivatives, one strategy is to buy call options to capitalize on further price increases while limiting potential losses. With US employment and inflation data on the horizon, using options allows for exposure to a bullish trend without excessive risk amid potential volatility. Selling out-of-the-money put spreads is another strategy to earn premiums based on the belief that a significant price drop is unlikely. We also need to keep in mind the strong support from central bank purchases, which is part of a multi-year trend. The World Gold Council reports that central banks added a solid 800 tonnes to their reserves in the first three quarters of 2025, with emerging markets leading this increase. This ongoing demand creates a robust price floor, turning significant dips into good buying opportunities. While we remain optimistic, we are cautious of risks from the forthcoming Personal Consumption Expenditures (PCE) data. A surprisingly high inflation report could undermine the rate-cut expectations and strengthen the US dollar, causing a temporary decline in Gold. Additionally, the noted weakness in Chinese physical demand at these high prices may limit immediate price increases. Create your live VT Markets account and start trading now.

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