Lower Fed Rates Favor Non-Yielding Assets Like Gold
The US Dollar Index remains subdued at 99.55. Recent Senate approval of a stopgap bill has slightly pressured the Dollar as markets lean towards riskier assets.
Gold price finds support near its 20-day EMA, around $3,981.00. A 14-day RSI suggests the trend is sideways, trading between 40.00-60.00.
October 28’s high near $3,888.62 is key support for Gold. The all-time high of $4,380 poses major resistance.
Gold is valued as a store of value and safe-haven asset in turbulence. Central banks hold the most Gold, having added 1,136 tonnes worth $70 billion in 2022.
Gold inversely correlates with the US Dollar and Treasuries. As the Dollar weakens, Gold prices often rise, especially with lower interest rates.
Potential Strategies for Traders
With gold moving towards $4,080, we see this as a direct response to expectations of another Federal Reserve interest rate cut in December. The market is pricing in a 64.6% chance of a cut, which would be the third consecutive move and signals a clear easing cycle. This environment is highly supportive for non-yielding assets.
The latest October 2025 Consumer Price Index (CPI) data, which showed inflation cooling to 2.8%, reinforces the view that the Fed has room to act. Historically, we saw a similar pattern in the 2019 easing cycle, where gold rallied significantly in the months following the first rate cuts. A weaker US Dollar, currently trading near 99.55 on the DXY, is also making gold more attractive for foreign investors.
For derivative traders, this suggests a bullish but cautious stance ahead of the December meeting. The Relative Strength Index (RSI) indicates a sideways trend, so an outright explosive move isn’t guaranteed just yet. A bull call spread could be an effective strategy, such as buying a December $4,100 call option while simultaneously selling a $4,300 call option to lower the entry cost.
This strategy allows us to profit from a move higher toward the all-time high near $4,380 while defining our risk if the price remains range-bound. On the downside, the support level around $3,981 is a key area to watch. Any break below this could signal that the upward momentum is fading for now.
We should also consider that central banks have continued their strong purchasing trend seen in 2022, with World Gold Council data through Q3 2025 showing persistent demand from emerging markets. For those with existing long positions in futures, buying put options with a strike price below the October 28 high of $3,888.62 could serve as a cheap hedge. This protects against any unexpected hawkish surprise from the Fed or a sudden rebound in the US Dollar.
