Gold prices have dipped below record levels after hitting $4,179. This decline is happening in the context of rising trade tensions between the US and China. China has introduced new port fees for US-linked ships and imposed sanctions on US subsidiaries of Hanwha Ocean. Even though gold experienced a brief drop to $4,090, it remains close to $4,125. Traders are cashing in on profits after a strong rally, but worries about the US-China trade situation are still affecting market attitudes.

Gold Rally Continues

Gold is still on the rise, with prices up over 50% this year, making it the best yearly performance since 1979. Key factors include expected interest rate cuts from the Federal Reserve, global tensions, and increased buying by central banks. The trade tensions between the US and China are growing and now impacting the shipping industry. China’s new fees follow similar measures taken by the US, affecting trade flows. Additionally, China has imposed sanctions on Hanwha Ocean’s US subsidiaries for assisting investigations against its interests. In France, the political spotlight is on Prime Minister Sébastien Lecornu’s quick reappointment and budget plans as opposition parties consider confidence motions. Meanwhile, Japan is facing political instability due to the breakup of the coalition between the Liberal Democratic Party and Komeito. In the US, the government shutdown is now entering its third week. Fed Chair Jerome Powell’s upcoming comments at the NABE Annual Meeting are eagerly awaited for insights into the Federal Reserve’s plans for rate cuts.

Volatility Plays and Positioning

With gold stabilizing just under its all-time high, our immediate focus is on volatility strategies ahead of Jerome Powell’s speech. The recent surge in prices has increased implied volatility, with the Cboe Gold ETF Volatility Index (GVZ) hovering around 18. This suggests that buying November 2025 call options at a strike price near $4,200 is a low-risk way to capitalize on potential price increases. The strong upward trend in gold is supported by significant fundamentals, which show no signs of slowing down. Year-to-date, net inflows into gold-backed ETFs have surpassed $40 billion, echoing the major risk-averse sentiment seen in 2020. This sustained demand from investors is solidifying support for the market, making any large pullbacks unlikely. Additionally, central banks continue to buy gold at an unprecedented rate, which further supports prices. Purchases are on track to exceed the record 1,082 tonnes purchased in 2022 as countries diversify away from the dollar amid ongoing geopolitical tensions. This institutional demand indicates that price drops toward $4,100 will be seen as strong buying opportunities. The Federal Reserve’s dovish approach is the main driving force behind these dynamics, and we should expect Powell to confirm this. Given the latest September CPI data is at 2.1%, the Fed has strong reasoning for the two additional rate cuts expected by year-end. We will be looking for any language from Powell that reinforces this view, which could likely push prices above recent highs. Geopolitical risks are increasing, making gold derivatives an essential tool for hedging any investment portfolio. The deepening US-China trade conflict, a continuing US government shutdown, and political unrest in allied nations such as France and Japan contribute to a climate of uncertainty. Holding long gold futures or call options serves as a direct hedge against these global risks. From a strategic standpoint, we are monitoring the $4,090 intraday low as a critical level for entering new positions. If this level holds, it suggests that the current pullback is just profit-taking before the next upward move. Gradually entering long futures contracts or bull call spreads during any dips toward this support zone appears to be a sensible strategy for the upcoming weeks. Create your live VT Markets account and start trading now.

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