Gold rose more than 1% on Wednesday amid uncertainty over US trade policy and expectations of Federal Reserve rate cuts. XAU/USD traded at $5,204 after falling to $5,121.
US President Donald Trump said the economy is doing well and referred to a “golden age”. He also said lower interest rates would help housing, and that inflation is falling while wages are rising.
Geopolitical And Diplomatic Developments
Trump said Iran is working on missiles that could reach the US and that Tehran wants a deal, while repeating that diplomacy remains the approach. Talks between Washington and Tehran are due to resume in Geneva on Thursday.
US Trade Representative Jamieson Greer said Trump will sign a directive to raise the global tariff to 15% “where appropriate”. He also said the US is seeking continuity with countries that have trade deals.
Kansas City Fed President Jeffrey Schmid said policy is in a “pretty good place for the job market” and raised concerns about the balance sheet, adding inflation work remains. Richmond Fed President Thomas Barkin said rate policy cannot address disruption from AI.
Swaps markets priced 51 basis points of Fed easing this year, via the CME FedWatch Tool. JPMorgan forecast gold could reach $6,300 per ounce by year-end, and central banks bought 1,136 tonnes worth about $70 billion in 2022, the World Gold Council said.
We see gold trading strongly above $5,200, driven by renewed trade fears from the White House. This uncertainty, coupled with the market pricing in two Fed rate cuts this year, creates a bullish backdrop for the metal. Traders should note the recent volatility as a key factor in option pricing.
Options Strategies And Key Levels
With strong central bank buying continuing the trend we saw in 2025, when over 1,037 tonnes were added to global reserves, the underlying demand is solid. This supports the forecast of $6,300, making long call options an attractive strategy for those anticipating a breakout. Buying calls with strike prices above the current high of $5,249 could offer leveraged upside if the bullish momentum continues.
However, we must be cautious as the technical resistance at $5,249 is a significant hurdle. With recent inflation data from January showing core prices remain sticky above 3%, Fed officials may delay the anticipated rate cuts. This could trigger a pullback, making protective puts with strikes below $5,150 a prudent hedge for existing long positions.
The conflicting signals between market expectations for rate cuts and cautious Fed commentary suggest an increase in volatility is likely. Looking back at the geopolitical tensions of 2025, we saw similar spikes in volatility which benefited options holders. Traders who are uncertain about direction but expect a significant price swing could consider straddles, buying both a call and a put option to profit from a large move either way.
In the coming weeks, we must closely watch the US jobless claims data and any further comments from Fed officials. The next CPI inflation report will be particularly critical, as a lower-than-expected number could accelerate bets on rate cuts and push gold through resistance. Any concrete details on the proposed 15% global tariff will also be a major catalyst for the market.
