Gold prices have declined over 1.50% on Wednesday after a 5% drop on Tuesday, marking the largest daily loss in five years. Currently, XAU/USD stands at $4,050, previously peaking at $4,161 with traders anticipating the upcoming US inflation report.

Despite a minor decrease in the US Dollar index, Gold remains under pressure, falling below the October 8 high of $4,059. Year-to-date, Bullion maintains a 54% increase amid expectations of continued Federal Reserve interest rate cuts.

Us Consumer Price Index Report

The US Consumer Price Index report is due on Friday, with analysts predicting a steady Core CPI at around 3.1%. Concurrently, a report indicated the White House may limit exports to China, potentially affecting global trade, especially technology sectors.

The 10-year US Treasury yield has fallen by 1.5 basis points to 3.951%, impacting real yields and Gold prices. Market participants foresee a high likelihood of a 50 bps rate cut this year, and potentially 100 bps of rate cuts in 2026.

Technically, Gold prices are retreating but remain bullish above certain support levels. A rise above $4,100 could lead to further gains, while failure to maintain certain levels could accelerate losses.

Given today’s date of October 23, 2025, we are seeing significant profit-taking in gold after a historic run. The sharp 5% drop we saw this week was the largest single-day loss since the volatile markets of 2020, reminding us that such pullbacks are normal after massive rallies. Traders are clearly reducing their risk ahead of the crucial inflation report this Friday.

All Eyes On Inflation Data

All eyes are now on the US Consumer Price Index (CPI) data. With the market pricing in a 98% chance of 50 basis points in Fed rate cuts by year-end, a higher-than-expected inflation number could challenge that view and send gold tumbling toward the $4,000 psychological level. Conversely, an in-line or soft CPI print would likely reignite the rally, confirming the Fed’s path and pushing prices back toward the recent highs.

From a derivatives standpoint, the elevated uncertainty ahead of the CPI release means implied volatility on short-term gold options is likely high. This presents an opportunity for traders to sell premium, perhaps through an iron condor, if we believe the price will settle within a range after the news. For those expecting a major price swing, buying a straddle could be a viable strategy to profit from a move in either direction.

Long-term fundamental support for gold remains strong. Central banks have been consistent buyers, and looking back, their record purchases of 1,136 tonnes in 2022 set a trend that continued through 2023 and 2024, absorbing market supply. This underlying demand suggests that significant dips, like the one we are experiencing, may be viewed as buying opportunities for larger players.

For traders looking to position for a rebound, buying call options with a strike price above $4,100 offers a capital-efficient way to capture potential upside. On the other hand, if the key $4,000 support level is breached after the CPI data, purchasing put options could be a prudent hedge or speculative play for a deeper correction towards the 50-day moving average near $3,722. The background noise about potential US export curbs on China adds a layer of geopolitical risk that could trigger a sudden flight to safety, making a small long position a sensible hedge.

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