Gold rose nearly 2% on Friday and moved back above $5,000 after a softer US inflation report. It had dipped to about $4,950 before buyers pushed it higher.
US CPI for January was 2.4% year on year, below the 2.5% estimate and down from 2.7% in December. Core CPI was 2.5% year on year, in line with forecasts and down from 2.6%.
Gold Reclaims Key Level
Other US data this week was firm, with Nonfarm Payrolls showing over 130K jobs added in January. The Unemployment Rate fell to 4.3%.
Money markets put the chance of a June rate cut at 55% for a 25 basis point move. Recent CPI readings were 3.0% in September, 2.7% in November and December, and 2.4% in January.
US Treasury yields fell, with the 10-year down nearly 3.5 basis points on the day and 14 bps on the week to 4.06%. The US Dollar Index was set for a 0.85% weekly drop and traded at 96.84, down 0.07% on the day.
Next week includes Durable Goods Orders, housing data, Fed remarks, FOMC Minutes, Initial Jobless Claims, a second GDP estimate for Q4 2025, and core PCE. Technical levels cited include $5,100 and $5,200 as resistance, and $4,971, $4,900, $4,800, and $4,618 as support.
Derivatives Strategy And Positioning
With gold now back above the crucial $5,000 mark, we see this as a clear signal driven by softer inflation data. This rally is fueled by renewed market bets that the Federal Reserve will be forced to cut rates by June. We must now position for continued upward momentum as long as this narrative holds.
Derivative traders should consider buying call options with strike prices approaching the $5,100 resistance level. Implied volatility has likely increased after the sharp move, but the strong momentum suggests further upside is possible. Looking back at the gold rally in late 2023, when Fed pivot speculation first began, we saw similar patterns of sharp, sustained buying interest.
However, we must also account for the strong jobs report and sticky core inflation, which could give the Fed a reason to wait. To hedge against a potential reversal, purchasing put options with a strike price below the 20-day moving average, near $4,950, could protect profits. This provides a safety net if upcoming data changes the current sentiment.
The focus in the coming weeks will be on the Fed’s preferred inflation gauge, the core PCE data. This release could either confirm the CPI’s disinflationary trend or challenge it, creating significant price swings. We should prepare for heightened volatility around this event, possibly using strategies that profit from large moves in either direction.
We are also closely watching the US 10-year Treasury yield, which has dipped to 4.06%. Historically, a sustained drop in real yields provides strong support for non-yielding assets like gold. If yields continue to fall and the US Dollar Index remains below 97.00, it reinforces the bullish case for gold derivatives.
