Gold rose more than 1% on Friday, with XAU/USD at $5,065 after touching $4,981. The move followed slower US growth and inflation data, while the US Dollar Index (DXY) fell 0.11% to about 97.70.
The US Supreme Court ruled against Trump’s tariffs made under an emergencies law, and US equities turned positive. Trump said sections 232 and 301 tariffs remain, and he plans a 10% global tariff under section 122.
Stagflation Signals Support Gold
US GDP for Q4 fell from 4.4% to 1.4% YoY, linked to a 43-day government shutdown. Core PCE inflation was reported as above 3%, while another estimate cited a December increase easing from 4.4% to 1.4% YoY.
University of Michigan sentiment slipped from 57.3 to 56.6, with households citing higher prices. One-year inflation expectations fell from 4% to 3.4%, while five-year expectations stayed at 3.3%.
The US 10-year yield rose 1 basis point to 4.081%. Markets still price two 25 basis point Fed cuts this year, with scepticism about a cut before June 2026.
Next week’s focus includes ADP Employment Change (4-week average), Initial Jobless Claims, and January PPI. Gold levels cited include $5,100, $5,200, $5,451, $5,598, $4,841, and a 50-day SMA at $4,681.
Options Positioning And Key Risk Levels
The current environment is flashing signs of stagflation, as we just saw US economic growth slow sharply to 1.4% while core inflation stays hot above 3%. This combination is a powerful tailwind for gold, explaining its recent surge above the critical $5,000 level. The weak US Dollar, with the DXY hovering around 97.70, is only adding fuel to this fire.
Last week’s data confirms this trend, with initial jobless claims ticking up to 245,000, the highest in three months, reinforcing the slowing growth narrative. Meanwhile, the latest January Consumer Price Index (CPI) report came in at 3.5% year-over-year, showing that the inflation problem we saw in the PCE report is not fading. This makes holding non-yielding gold more attractive as a store of value.
Geopolitical tensions are adding a significant risk premium that benefits gold prices. The new threat of a 10% global tariff and potential military action against Iran creates exactly the kind of uncertainty that pushes investors toward safe-haven assets. We should expect this uncertainty to keep a floor under the gold price in the near term.
This situation feels reminiscent of the inflation shock we experienced back in 2022 and 2023. Back then, gold held its ground against aggressive central bank rate hikes and eventually rallied as economic fears took over. We see a similar pattern forming now, with markets expecting rate cuts later this year despite the ongoing inflation.
For derivative traders, this suggests a bullish bias, making long call options on gold an attractive strategy to capture further upside. We should be looking at strike prices above the next resistance level of $5,100, perhaps targeting the $5,200 or $5,450 levels for the coming weeks. This approach offers a defined-risk way to profit from continued momentum.
However, we must watch the US 10-year Treasury yield, which is holding above 4.08%. If yields continue to rise, they could act as a headwind for gold, so using protective put options as a hedge against a sharp reversal is a prudent measure. The uncertainty over a potential rate cut before June means we should be prepared for volatility.
Given the heightened uncertainty, implied volatility on gold options has likely increased. This makes selling out-of-the-money put options a viable strategy for those willing to acquire gold at a lower price. Selling puts with strike prices below recent support, such as the February 17 low of $4,841, allows us to collect premium while the market digests the stagflation fears.
Looking ahead, we will be closely watching the upcoming ADP employment and Producer Price Index (PPI) reports for January. Any signs of further economic weakness or persistent inflation in these reports will likely serve as the next catalyst for a move toward the recent highs. A strong jobs number, however, could temper expectations and cause a short-term pullback.
