Gold (XAU/USD) is on the rise, hitting all-time highs above $4,200. This growth is driven by ongoing global economic and political uncertainty, along with expectations that the Federal Reserve may adopt a more dovish stance. Right now, XAU/USD is around $4,200, reflecting a daily increase of 1.40% after peaking at $4,218 earlier. This upward trend is fueled by escalating tensions in the US-China trade relations, enhancing Gold’s status as a safe haven, alongside the current US government shutdown.

Gold Price Drivers

A weaker US Dollar and low Treasury yields are also supporting Gold’s price, helping it stay near record levels. Ongoing geopolitical tensions and strong institutional demand create a positive outlook for the precious metal. The US-China trade conflict is impacting market sentiment, with recent threats and retaliatory measures making headlines. The IMF Chief Economist warns that a renewed trade war could harm the global economy. Meanwhile, the Federal Reserve Chair recognizes significant risks to employment amid rising inflation. Markets are pricing in potential interest rate cuts from the Fed, with a 97% probability of a 25-basis-point cut expected this month. This is in response to a recent jobs report showing an uptick in unemployment to 4.2%, indicating a softening labor market. Lower interest rates make holding non-yielding gold more appealing. Gold continues to be a key investment during uncertain times, acting as both a safe haven and a hedge against inflation. With gold trading near $4,200, traders might consider strategies to profit from upward momentum, such as purchasing call options or bull call spreads. However, given the rapid price increase, it’s wise to prepare for a possible pullback. The current rally is fueled by economic uncertainty and rising geopolitical tensions.

Institutional Demand

Central banks are engaged in a historic buying spree of gold. Recent data from the World Gold Council suggest that purchases in 2024 and 2025 could match the record levels from 2022. This strong institutional demand provides a solid support level for prices, especially as the latest CPI figures show inflation stubbornly above the Fed’s target. Gold is seen as a crucial hedge against currency devaluation and ongoing price increases. The market is almost certain a Federal Reserve rate cut will happen soon, with fed funds futures showing a 97% likelihood of a cut this month. This expectation comes after the latest unemployment report showed an increase to 4.2%, signaling a softening labor market. Lower interest rates make holding gold more attractive. Today’s market mirrors the conditions from 2019-2020, when the US-China trade conflict and a dovish Fed drove gold to record highs. Similar patterns of strong rallies followed by brief consolidations were seen then. Historical trends suggest that significant dips should be seen as buying opportunities. Although the trend is bullish, the Relative Strength Index (RSI) indicates overbought conditions, suggesting a cautious approach is needed in the short term. Derivative traders might consider buying call options with strike prices near the $4,160 or $4,100 support levels to take advantage of any temporary dips. Selling cash-secured puts below these key levels could also be a good strategy for collecting premium or entering a long position at a more favorable price. Create your live VT Markets account and start trading now.

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