Gold prices fell on Thursday as US President Trump eased his aggressive stance towards Iran. Additionally, encouraging US jobs data reduced expectations for Federal Reserve rate cuts. XAU/USD was trading at $4,609.
Risk sentiment improved, driven by a global equities recovery and Trump’s decision not to attack Iran. Trump has stated that he will monitor the situation, instead of taking immediate military action.
Fed Chair Jerome Powell
Despite an ongoing investigation into Fed building renovations, Trump confirmed he has no plans to dismiss Fed Chair Jerome Powell. Recent US economic data, including jobless claims, demonstrate a stable economy.
Market participants had anticipated 47 basis points of rate cuts by year-end. Fed officials, led by Regional Presidents Raphael Bostic and Austan Goolsbee, spoke earlier on Thursday.
Upcoming US data includes Industrial Production and speeches by Fed Governors Michelle Bowman and Philip Jefferson.
The US Dollar Index reached a new yearly high, reflecting the Greenback’s strength. Recent manufacturing data from the New York and Philadelphia Fed Banks indicate an upswing in activity.
Gold prices remain in an uptrend but have slightly pulled back. For a continued bullish trend, XAU/USD needs to surpass previous highs. Meanwhile, gold, seen as a safe-haven asset, is influenced by geopolitical unrest and economic factors. Central banks added 1,136 tonnes to their reserves in 2022.
Derivative Traders Strategy
Given the pullback in gold, we are seeing a tactical opportunity for derivative traders. The easing of geopolitical tensions, much like the de-escalation we observed with Iran back in January 2025, is temporarily reducing the metal’s safe-haven appeal. This creates an environment where selling short-dated call options above the recent high of $4,643 could be a prudent strategy to collect premium.
The primary headwind for gold right now is the strong US economic data, which is forcing a repricing of Federal Reserve rate cuts. The latest Non-Farm Payrolls report for December 2025 showed a resilient 195,000 jobs added, and the most recent CPI data came in slightly hot at 3.4%. This reinforces the hawkish stance from Fed officials who feel policy is not overly restrictive.
As a result, market expectations for a rate cut in March have fallen sharply. The CME FedWatch tool now indicates less than a 40% chance of a cut, down from over 70% just two weeks ago. For traders, this strengthens the case for buying put options or establishing bear put spreads to hedge against a further drop towards the $4,569 support level.
However, we must remember the underlying bid from institutional players. Central banks continued their strong buying in 2025, adding over 1,000 tonnes to global reserves and providing a long-term floor for the price. This suggests that any significant dip below the $4,500 psychological level might be met with strong buying interest.
The US Dollar Index (DXY) has climbed to a new high for the year, currently trading around 104.50, which adds another layer of pressure on gold. If the dollar continues its ascent on the back of strong economic performance, gold’s uptrend will be seriously tested. Therefore, we are closely watching the $4,569 level; a break below this could signal a deeper correction.
