Gold’s rise this month is nearly 22%, amid concerns about US economic policy and increased geopolitical tensions involving Iran and Russia. The US Dollar Index stabilised slightly around 96.24, but earlier dipped to a four-year low of 95.56.
Technical Analysis Suggests Bullish Trend
From a technical standpoint, gold maintains a bullish profile with momentum indicators like the RSI indicating overbought conditions. Key support levels are at $5,150 and $5,000; a break above $5,300 could see targets at $5,400 and $5,500.
The Fed’s monetary policy impacts gold prices through interest rate adjustments. It conducts eight meetings annually for economic assessments and policies. During extreme financial conditions, the Fed may utilise Quantitative Easing to provide liquidity, which can weaken the USD, or Quantitative Tightening, which could strengthen the dollar.
We see gold trading near all-time highs, but the situation is tense ahead of the Fed’s decision later today. While the bullish trend is strong, technical indicators like the Relative Strength Index are deeply overbought at 87, signaling a potential for a sharp reversal on any hawkish surprise. Recent inflation data, which showed the Consumer Price Index for December 2025 cooled to 3.1%, gives the Fed room to adopt a more gradual easing stance.
The persistent weakness in the US Dollar is a primary driver for gold’s rally, a trend openly supported by the administration. The US Dollar Index is currently hovering near 96.24, challenging multi-year support levels we last saw back in mid-2022 before the last major tightening cycle began. This political pressure on the currency is forcing a structural shift in how we should view traditional safe-haven assets.
Strategic Approaches to Gold Investments
Given the overbought RSI reading and high uncertainty, buying outright calls is expensive and risky. We believe a more prudent strategy is to use bull call spreads, such as buying a February $5,300 call while selling a $5,500 call, to limit premium costs while still capturing potential upside. Implied volatility on near-term gold options has spiked to over 25, making spread strategies particularly attractive for managing risk.
For those of us holding long positions, or for speculators expecting a pullback, purchasing put options with a strike below the $5,150 support level offers a hedge. A more cautious message from Chair Powell could easily trigger profit-taking, and last month’s Non-Farm Payrolls report, which showed job growth slowing to 155,000, gives him justification for a less aggressive policy path. A clear break below the $5,000 psychological level would signal a more significant short-term top is in place.
Beyond the immediate Fed meeting, we must not lose sight of the strong underlying demand from central banks and exchange-traded funds. Recent data from the World Gold Council showed net inflows into gold-backed ETFs accelerated in the first few weeks of January 2026, adding another 35 tonnes globally. These flows, combined with ongoing geopolitical frictions, provide a solid foundation of support for gold prices.
