Gold prices have surged to a record high of $4,056 per troy ounce. This marks a 1.70% increase for the day and a remarkable 54% rise since the year began. The rise is fueled by worries about a potential U.S. government shutdown and expected cuts in U.S. interest rates. The ongoing government shutdown has delayed economic data releases. As a result, traders are paying close attention to speeches from officials at the Federal Reserve. Although recent speeches have not been very impactful, upcoming discussions and the minutes from the Federal Open Market Committee might provide clearer insights. Additionally, geopolitical issues such as the Israel-Gaza conflict and the Russia-Ukraine war are affecting the market.

Gold Value And Market Influences

Gold’s price continues to rise despite a strengthening U.S. Dollar, which increased by 0.45% to 99.00 on the Dollar Index. U.S. Treasury yields have dipped slightly, which supports gold prices. So far this year, $64 billion has flowed into global Gold ETFs, with September alone seeing $17.3 billion of that. The People’s Bank of China has added gold to its reserves for eleven consecutive months. Gold could surpass $4,100, with resistance levels at $4,150 and $4,200. Key support is at $4,000; if breached, the price may fall to $3,819. With gold breaking through $4,000, the outlook suggests a bullish trend in the coming weeks. Traders are leaning toward long positions using call options or futures contracts to capitalize on this momentum. The goal is to take advantage of strong demand for gold as a safe haven, driven by the ongoing government shutdown and geopolitical tensions. Historic capital inflows are propping up this rally, with more than $64 billion flowing into global gold ETFs just this year. This institutional interest is evident with central banks, like the People’s Bank of China, increasing their gold reserves continuously for eleven months. This trend of accumulating gold by official institutions is more aggressive than we saw in 2022, which was already a record year.

Strategy For Trading Gold

Considering the high RSI and the upcoming FOMC minutes, we should use options to manage risk while targeting key price levels. Buying call options with a strike price at or above $4,100 could yield profits from further gains while limiting potential losses. Alternatively, selling out-of-the-money put options below the $3,941 support level can also collect premium, betting that the current rally has established a strong base. We should also be aware of the unusual strength in the U.S. Dollar Index, which is around 99.00 and typically moves in the opposite direction to gold. This discrepancy implies the gold rally could be weak, making it wise to consider protective put options in case of a quick downturn. Any positive development, like a resolution to the government shutdown or a hawkish shift from the Fed, could trigger a swift sell-off from these record highs. The market is largely anticipating a 25-basis-point rate cut at the meeting on October 29, with a 94% probability. This high certainty suggests that the greater risk and potential trading opportunity lie in a surprising decision by the Fed to keep rates unchanged. Such a move would likely boost the dollar and lead to a significant decline in gold, catching many traders off guard. Create your live VT Markets account and start trading now.

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