Gold’s price has risen to over $4,200 due to geopolitical risks, US-China trade conflicts, and the ongoing US government shutdown. The expectations of a lenient Federal Reserve have also weakened the US Dollar, which benefits gold since it doesn’t generate income. The Federal Reserve is likely to lower interest rates twice by the end of the year, putting additional pressure on the Dollar. Even though gold may seem overbought, its upward trend continues thanks to rising trade tensions, especially between the US and China.

International Monetary Fund Forecast

The International Monetary Fund predicts a global growth rate of 3.2% for 2025. However, a worsening US-China trade war could harm economic output. As the US shutdown persists with no end in sight, more investors are turning to gold for safety, keeping prices high. Traders expect a 25-basis-point rate reduction in October, with another possible cut in December. This situation weakens the Dollar and boosts gold prices. If gold drops in the short term, it may create a buying opportunity, likely finding support around $4,060 to $4,055. A dip below that level could indicate potential losses. The US Dollar’s performance has been mixed against major currencies; it is strongest against the New Zealand Dollar but weaker against the Euro and Canadian Dollar. With gold rising above $4,200, the best approach is to follow the trend cautiously. The extremely high RSI reading suggests that opening long futures positions carries some risk. Instead, consider buying call options to limit potential losses while still allowing for profit as the government shutdown and geopolitical tensions continue.

Gold Market Shift

This rally is much larger than previous spikes, like the 2024 peak around $2,430. The market now believes the Federal Reserve has shifted away from its earlier aggressive rate hikes, with cuts seen as likely. This fundamental change in policy is a strong boost for gold. Recent statistics back this positive outlook. Major gold ETFs, such as GLD, have seen significant net inflows since the shutdown started on October 1st. Latest CFTC data shows that speculative net long positions are at the highest level in over a year, indicating that large funds are betting on ongoing strength, though the trade is becoming crowded. Traders should monitor the $4,100 level closely for potential pullbacks. A dip to this area could be a chance to start new long positions or add to existing ones. To protect against a sudden drop from overbought conditions, buying out-of-the-money put options can be a cost-effective way to insure an existing long portfolio. The continued weakness of the US Dollar is crucial in this trade, affecting more than just gold. With predictions for two more rate cuts by year-end, derivative traders may consider shorting the US Dollar Index (DXY) futures. Another option is to buy call options on currency pairs like EUR/USD or GBP/USD to take advantage of the Fed’s dovish stance. The current US government shutdown has now reached its third week. It draws comparisons to the 35-day shutdown in late 2018, which caused major market disruption. As long as Washington remains gridlocked and trade tensions with China persist, significant drops in gold prices are likely to be met with strong buying. Implied volatility in gold options has sharply increased, indicating that the market anticipates further price swings. Create your live VT Markets account and start trading now.

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