Gold prices have shown early signs of stabilising after a steep drop from over USD5,500/oz to USD4,402/oz. Analysts from OCBC Bank suggest that despite this correction, uncertainty around the Federal Reserve’s policy and the sensitivity to the US dollar could lead to volatile short-term trading.
Key support levels for gold are identified between USD4,400 and USD4,600. If prices break below this range, it may indicate a deeper corrective phase, with further support around the USD4,210/15 levels. The report expresses that while prices have adjusted, external economic factors could influence future movements.
Market Adjustment
We’ve seen gold prices show signs of finding a floor after the dramatic drop from above $5,500 last week. This steep decline was triggered by the latest jobs report, which showed a surprisingly strong addition of 280,000 jobs in January, reinforcing the Federal Reserve’s recent hawkish stance. The market is now adjusting to the idea that rate cuts are not as imminent as we thought back in late 2025.
Given the high uncertainty around the Fed’s next move and gold’s sensitivity to the US dollar, trading is likely to be choppy. This environment suggests that option strategies designed to profit from volatility, such as long straddles or strangles, could be effective around key economic data releases. Expect price swings as the market digests each new piece of inflation and employment data.
The $4,400 to $4,600 range is now a critical support zone for gold. Traders might consider buying call options with strike prices just above this area, betting on a short-term rebound. However, be prepared with protective put options in case this support fails to hold.
Strategy for Deeper Correction
If we see a sustained break below $4,400, it would signal a much deeper correction is underway. In that scenario, purchasing puts or establishing bear put spreads targeting the $4,210 to $4,215 support level would be a logical next step. This would align with the renewed dollar strength we’ve seen since the start of the year.
