Insights 
VT 
Last week, gold prices reached a new record high of $4,381 per troy ounce. Although prices have recently fallen, they remain 50% higher than at the year’s start. The increase was marked by two waves: a 25% rise between January and April, with prices stabilising around $3,300, and another rise beginning in August, peaking at nearly 30%.
Factors Influencing Gold Prices
Traditionally, US real yields have influenced gold prices as gold competes with risk-free, interest-bearing investments like US government bonds. Normally, rising interest rates make gold less attractive, while falling rates or rising inflation enhance its allure. However, since mid-2023, this trend has shifted. Gold prices have risen despite rising real yields, which would typically reduce its appeal. From September, real yields decreased slightly, contributing to the gold price increase, yet not enough to fully explain the extent of the rise.
Other elements appear to be affecting gold demand and prices, beyond the typical relationship with US real yields. External factors are now believed to significantly contribute to gold’s price fluctuations. The precise influence of these factors remains an area of observation and analysis by financial analysts.
Given the recent price action, we must acknowledge the extreme volatility in the gold market. The surge to a record high of $4,381 last week, followed by a sharp pullback, suggests that large price swings will continue. Implied volatility on gold options has jumped, with the GVZ index, a measure of gold’s expected volatility, recently hitting 25, a level we haven’t seen since the market stress in early 2024.
The old playbook of tracking US real yields to predict gold’s direction is no longer reliable. We are seeing a structural shift where other factors now dominate gold demand. Recent data confirms that global central banks have purchased over 800 tonnes through the third quarter of 2025, on pace to set a new annual record as they continue to diversify reserves.
Opportunities and Risks in Gold Market
This powerful demand comes from a need to hedge against sovereign debt risk and geopolitical instability. With the US national debt now exceeding $36 trillion, we see a growing allocation to gold as a store of value outside of traditional fiat currencies. Therefore, we should view this current price dip as a potential buying opportunity, possibly using call option spreads to position for a resumption of the uptrend.
However, the rejection from the record high is a significant technical signal that cannot be ignored. For those of us with existing long positions in gold futures or ETFs, this is a critical time to manage downside risk. We can do this by purchasing out-of-the-money put options, which act as a cost-effective insurance policy against a deeper price correction in the weeks ahead.
The current environment of high uncertainty also creates opportunities for non-directional strategies. A long straddle, which involves buying both a call and a put option at the same strike price, could be effective. This position will profit if gold makes another major move, either up or down, which seems highly probable.
