Gold stays steady near its peak due to ongoing trade tensions between the US and China and geopolitical risks. The metal benefits from strong demand as a safe-haven asset, driven by the ongoing conflict between Russia and Ukraine and expectations of more rate cuts from the Federal Reserve. Initially, US President Donald Trump’s reconsideration of a 100% tariff on Chinese goods eased worries. However, his later comments about possibly deploying Tomahawk missiles in the Russia-Ukraine conflict kept tensions high, pushing gold prices up further.

Impact of the US Government Shutdown

The US government is still in shutdown, which raises economic concerns. Stalled progress in Congress and increasing tensions in international relations create uncertainties that support rising gold prices. Expectations of future interest rate cuts in the US are strong, with a 96% chance for October and 87% for December. This boosts the outlook for gold. However, current overbought conditions may lead to a short-term dip. If prices dip below $4,020-4,018, buyers might step in around $4,000, while support remains at $3,965-3,964. If prices fail to stay above these levels, we could see technical selling bringing gold down to $3,900. In market terms, “risk-on” conditions see asset prices increase, while “risk-off” environments favor safe-haven assets like gold. Currencies like the Australian and Canadian dollars perform well when markets are risk-on, while the US Dollar and Japanese Yen gain in risk-off situations.

Current Market Conditions

The CBOE Volatility Index (VIX) is above 28, indicating heightened market fear, making this environment clearly risk-off. The uncertainty from US-China trade issues, a prolonged government shutdown, and geopolitical tensions in Ukraine create a strong case for safe-haven assets. These factors suggest that traders should prepare for ongoing market anxiety in the near future. The fundamental outlook for gold looks strong. In September 2025, there were net inflows of over $5 billion into gold-backed ETFs. Although the market seems overbought, we view any pullback to the $4,000 level as a potential buying opportunity for call options or futures. This allows traders to enter the established uptrend without chasing the market peak. Given the uncertainty, we advise caution on commodity-linked currencies like the Australian Dollar, which can be influenced by Chinese economic sentiment. Derivative traders might consider put options on the AUD/USD pair to hedge against a potential rise in trade tensions. This strategy aligns with the classic risk-off approach, favoring safe-haven currencies over those linked to global growth. Expectations of two more Fed rate cuts this year provide strong support, particularly with the latest Manufacturing PMI for September dropping to 48.5, signaling economic contraction. A similar situation occurred during the 2019 trade disputes when gold prices rose over 15% in the latter half of the year as the Fed adopted a more dovish stance. This historical context strengthens our belief in the current gold direction. The combination of a government shutdown and geopolitical issues makes it challenging for stocks. We recommend using derivatives to hedge long-only stock portfolios or to speculate on downside risk. Buying put options on the S&P 500 or selling call spreads can protect against potential market corrections in the coming weeks. Create your live VT Markets account and start trading now.

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