Gold’s price hit about $4,010 during the early Asian session on Thursday. This was influenced by the US government shutdown and possible interest rate cuts by the Federal Reserve. Tensions in the Middle East eased as Israel and Hamas agreed to a peace plan, but ongoing US economic and political issues kept demand for gold strong since it is viewed as a safe-haven asset. Gold prices are holding steady around $4,010, down from a record of $4,059. Concerns about economic stability grew as the US government shutdown entered its ninth day with little progress. The Federal Reserve made its first interest rate cut since late 2024 in September, hinting that more cuts may be on the way.

The Federal Reserve’s Impact

The Federal Reserve’s expected rate cuts could support gold’s price in the short term because lower interest rates reduce the cost of holding gold, which doesn’t earn interest. However, reduced tension in the Middle East might limit gold’s price increases. Central banks have been major buyers of gold, adding 1,136 tonnes to their reserves in 2022, which was the highest annual purchase ever recorded. Gold prices usually rise when there is economic uncertainty, but a strong US dollar can keep them steady. Geopolitical instability, fear of recession, and lower interest rates tend to push gold prices up. Since gold is priced in dollars, a weaker dollar usually leads to higher gold prices. As gold stays above $4,000, we should pay attention to key factors, like domestic US issues. The ongoing government shutdown and the Federal Reserve’s supportive stance are currently boosting gold’s price. These elements are more influential right now than the easing tensions in the Middle East. We should look at past government shutdowns to understand their effects on safe-haven assets. In the past, gold showed strength during long shutdowns, like those in 2013 and late 2018, as uncertainty weakened the dollar. Now, with the current shutdown at nine days, gold call options could be appealing if the political deadlock continues.

The Potential Strategies

The Federal Reserve’s policy is a significant factor in gold’s price. With one rate cut already in September 2025 and a nearly 78% chance of another in December, the cost of holding non-yielding gold will decrease further. This fundamental support opens opportunities for strategies like selling puts or setting up bull put spreads for income generation. We should also consider the strong institutional demand for gold. Central banks had a historic buying spree, adding a record 1,136 tonnes in 2022 and another 1,037 tonnes in 2023, according to the World Gold Council. This demand provides a solid base for the market and makes large sell-offs less likely. However, the peace plan between Israel and Hamas adds uncertainty that could limit gold’s gains. If the agreement holds and hostages are released as planned, the geopolitical risk that drove gold prices to record highs may quickly dissipate. This situation makes buying protective puts a wise strategy against abrupt changes in either the government shutdown or the peace deal. The mix of positive domestic policies and negative international developments suggests that implied volatility could increase. This scenario is ideal for strategies like long straddles or strangles, which would benefit from large price movements in either direction. We should be ready for significant fluctuations as news unfolds regarding the shutdown or the Middle East peace process. Create your live VT Markets account and start trading now.

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