Gold prices have risen to about $4,210 in early Asian trading on Thursday. This increase is mainly due to US-China trade tensions and the expectation of another interest rate cut by the Federal Reserve. A potential rate cut could make gold more appealing since it doesn’t yield interest, enhancing its status as a safe-haven investment. The market anticipates a 25 basis point rate drop at the upcoming Fed meeting in October, with more cuts likely next year.

Trade Tensions and Gold

Growing trade tensions between the US and China, along with new port fees on shipping, could raise gold prices even further. If the Federal Reserve makes any unexpected hawkish statements, it could strengthen the US Dollar, which may temporarily reduce gold prices. Gold is considered a safe haven and a hedge against inflation. Central banks, especially in emerging markets, have been significant buyers, adding about 1,136 tonnes in 2022. Gold often moves in the opposite direction of the US Dollar and US Treasuries. It is influenced by geopolitical tension and economic fears, with lower interest rates generally increasing demand. A strong US Dollar can keep gold prices steady, while a weaker Dollar may push them up. With gold around $4,210, the market’s expectations of a Federal Reserve rate cut are very clear. We’re waiting for verification of this softer stance from Fed speakers later today. Any hawkish surprise could lead to short-term volatility and impact the current price.

Monetary Policy Expectations

The outlook for easier monetary policy is reinforced by weak economic data. The latest Non-Farm Payrolls report from early October 2025 showed an increase of only 95,000 jobs, falling short of expectations and marking the third month of declining employment growth. This follows comments from Fed Chair Powell highlighting the risks of an economic slowdown. The renewed trade tensions between the US and China, especially with new port fees starting on October 14, add to the bullish sentiment. In the past, during the 2018-2019 trade disputes, gold prices rose as investors looked for secure investments amid market uncertainty and potential economic disruption. The current situation seems to follow this trend, increasing gold’s appeal as a safe haven. We also see strong demand from central banks, continuing the trend seen in 2022 and 2023. Preliminary data for the third quarter of 2025 shows that central banks globally added another 250 metric tons to their reserves. This ongoing purchasing provides a solid support level for gold prices. For derivative traders, the current environment suggests preparing for further gains while managing risks at these record levels. Buying call options, especially on dips, allows traders to capitalize on potential profits from expected rate cuts while minimizing risk to the premium paid. Elevated implied volatility indicates that the market expects significant movements after the Fed meetings. Another strategy is to implement bull call spreads to mitigate the high cost of options. This approach involves buying a call while simultaneously selling a higher-strike call, which reduces initial costs but caps potential profits. It’s a good choice for traders anticipating steady growth rather than dramatic price surges. Create your live VT Markets account and start trading now.

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