**Gold Prices and Technical Analysis** Gold prices (XAU/USD) rose by 0.4% to around $4,230 during Friday’s European trading session. For the last four days, the price has fluctuated between $4,164 and $4,265. A positive outlook remains, as many anticipate that the Federal Reserve (Fed) will soon lower interest rates. The CME FedWatch tool shows an 87% chance of a 25 basis point (bps) cut to 3.50%-3.75% in December. During this European session, the US Dollar Index (DXY) traded cautiously near 98.75, close to a five-week low. On the technical side, XAU/USD remains above the 20-day EMA, keeping a positive trend as the RSI rebounds near 60. Gold prices often move opposite to the US Dollar and US Treasuries and can be influenced by geopolitical instability. Central banks, particularly in China, India, and Turkey, are significant buyers of gold. In 2022, they purchased 1,136 tonnes, which was the highest annual total on record. These countries increase their reserves to boost economic strength and support their currencies during uncertain times. Gold is viewed as a safe haven and a hedge against inflation and currency devaluation. **Investment Strategies Amidst Fed Decisions** With many expecting the Federal Reserve to cut interest rates next week, the focus shifts to their guidance for 2026. The high probability of a rate cut suggests that the move is already priced into the current gold price of about $4,230. Traders should get ready for potential volatility based on the Fed’s comments, not just their actions. For those betting on a continued rise, buying call options makes sense to take advantage of upward momentum while managing risk. Non-Farm Payroll numbers have notably weakened from strong levels observed in 2024, giving the Fed room for this dovish action. Options with strikes above the current price that expire after the Fed’s announcement might be a smart choice. However, we must consider the risk of a surprisingly hawkish outlook from the Fed for 2026. Inflation has consistently stayed above target since peaking over 3% in 2024. A stricter stance could cause gold prices to drop sharply, potentially breaking the trend line support at around $4,110. Buying put options with strikes around $4,100 or even the key $4,000 level would act as effective protection or a speculative move. With mixed signals about immediate rate cuts versus future restrictive policies, significant price swings in either direction are likely. A long straddle strategy, which involves buying both a call and a put option, is suitable for profiting from this expected volatility. Implied volatility for gold options is expected to be high ahead of the meeting, reflecting uncertainty and making these positions more expensive but potentially profitable. Beyond the immediate Fed decision, the weak US Dollar Index, currently around 98.75, is a strong support for gold prices. This fundamental backing is bolstered by ongoing central bank demand, a trend that gained momentum following the record purchases in 2022 and 2023. We anticipate that this buying from emerging market banks will continue to help maintain gold prices. Create your live VT Markets account and start trading now.

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