Gold price (XAU/USD) hit a record near $4,130 during early trading on Tuesday in Asia. This spike is due to increased US-China trade tensions, raising the demand for safe-haven assets. US President Trump announced new trade measures, including 100% tariffs on Chinese goods and export controls on important software, starting November 1. Even with these actions, Trump emphasized that the US does not aim to hurt China, suggesting there could be future discussions. The expectation of further rate cuts by the US Federal Reserve also supports gold prices. The market predicts a 25 basis points rate cut in October, with another cut likely in December, enhancing the appeal of non-yielding assets like gold.

Gold as a Safe Haven

Gold’s price has increased over 56% this year. Some experts believe a short-term correction may be needed. Traditionally, gold acts as a safe haven and a hedge against inflation. Central banks, especially in emerging markets like China and India, have been significant buyers of gold to bolster their currencies. Gold prices typically rise when the US Dollar and US Treasuries fall. Additionally, gold’s value grows with lower interest rates and geopolitical tensions. With gold reaching a new high, we should consider the potential for a short-term pullback after such a strong rally. Conflicting signals from new tariff threats and softer comments from the White House are creating uncertainty. This suggests that while the trend is positive, it’s important to manage risk rather than chase the peak with unprotected positions.

Market Strategies and Risks

The high uncertainty ahead of the November 1 tariff deadline means implied volatility on gold options is likely to be high. While buying options can be costly, it opens the door for strategies like call spreads to bet on future gains while managing risk. Similar patterns occurred during the 2018-2019 trade disputes, where volatility in gold options increased ahead of major announcements, benefiting those who prepared for price swings. Given the possibility of a correction, it is crucial to hedge any long positions in the coming weeks. We recall the steep pullback in gold late in 2020 after a similar rapid rise, reminding us that trends can change. Buying put options or selling out-of-the-money covered calls on gold futures or ETFs can offer protection against sudden reversals. The market almost fully expects a Federal Reserve rate cut in October, which has encouraged the current rally. However, this creates a significant risk if Chairman Powell’s speech today is even slightly less dovish than anticipated, which could strengthen the US Dollar and lead to a gold sell-off. It’s important to remember that central banks have collectively added 1,037 tonnes in 2023, indicating strong ongoing demand. Ultimately, the November 1 deadline for new trade measures is a key point to watch. The president’s history suggests that sentiment can shift on a single statement, so his softened approach may not last. Trading derivative plays expiring in early November could effectively capitalize on this geopolitical event. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now