Gold prices (XAU/USD) jumped to nearly $4,050.00 during the European trading session on Wednesday. This rise stems from increased interest in safe-haven assets due to political instability in France and a government shutdown in the United States. In France, Prime Minister Sebastien Lecornu unexpectedly resigned, leading to a cabinet reshuffle. In the U.S., President Donald Trump has threatened spending cuts as the government shutdown enters its second week. As a result of the crisis in France, the Euro weakened, which boosted demand for the US Dollar, pushing it to a two-month high.

Rising Interest Rate Cuts

Expectations of interest rate cuts by the Federal Reserve also fueled the gold surge. The CME FedWatch tool shows an 82% chance of two cuts of 25 basis points this year. Investors are eagerly awaiting the FOMC minutes for insights on monetary policy. Gold has maintained a strong upward trend, driven by technical signals like the 20-day EMA and the 14-day RSI. Seen as a safe-haven and a hedge against inflation, gold’s appeal has grown. Central banks increased their gold reserves by 1,136 tonnes in 2022. Typically, gold rises when the US Dollar falls, showing an inverse relationship with the currency and risk assets. With gold surpassing $4,000, current market fears from the French political crisis and the US government shutdown provide a significant boost. This instability encourages a shift toward safety, making bullish investments in gold appealing. The strong upward momentum indicates this trend may continue in the short term. For traders wanting to take advantage, buying call options with strike prices near $4,100 could be a low-risk way to benefit from further gains. The strong bullish momentum, with the RSI staying above 60, supports strategies betting on a sustained rise. We see the upcoming FOMC minutes as a potential trigger for further movement.

Potential Risks from US Dollar Strength

Despite the positives, the strong US Dollar, currently close to a two-month high of 99.00, presents a challenge. To mitigate this risk, we are exploring bull call spreads, which lower entry costs by selling a higher strike call against one we purchase. This strategy allows us to profit from a steady rise while minimizing initial cash outlay in a volatile market. Recent data from the Commitment of Traders (COT) report showed that large speculators have raised their net-long positions in gold futures for six weeks in a row. This suggests institutional investors believe gold prices will rise, strengthening our bullish outlook. The anticipation of two Federal Reserve rate cuts this year, with an 82% probability, is a key driving factor. This view is supported by September’s US Consumer Price Index (CPI), which showed a persistent 3.9% year-over-year inflation rate. The unyielding inflation makes gold, which doesn’t yield interest, more attractive compared to bonds. Additionally, central bank buying remains strong since last year’s record levels. Recently, the People’s Bank of China added another 1 million ounces to its reserves, totaling over 8 million ounces in 2025. This ongoing institutional demand helps stabilize gold prices in the long run. Given the high prices, selling cash-secured puts with strike prices near the important support level of $3,900 is a solid strategy. This lets us earn premium from high implied volatility. If prices fall back, we can buy at a better price. We’ve seen similar sharp price movements before, such as during the 2020 market turmoil when gold first exceeded $2,000. Those temporary pullbacks provided excellent buying opportunities. Thus, any dip towards the rising 20-day EMA, currently around $3,800, should be seen as a chance to buy rather than a trend reversal. Create your live VT Markets account and start trading now.

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