Gold has climbed close to record highs, driven by ongoing uncertainties in geopolitics and the economy. Recently, the price of gold bounced back after US President Donald Trump made comments about US-China trade that reassured the market. Gold is currently trading around $4,350, more than 2.0% higher than last week’s low. Global tensions continue, with fresh conflict in Gaza and a prolonged US government shutdown impacting the markets. Important meetings are set to take place between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. US tariffs have cost global companies over $35 billion, with an expected $21-22.9 billion impact in 2025.

Market Concerns and Data Awaited

Friday will bring key CPI and PMI data that many are eagerly awaiting, amidst growing market concerns. Gold’s strength is bolstered by a dovish outlook from the Federal Reserve, ongoing geopolitical issues, and demand from central banks. The US government shutdown, now entering its twentieth day, adds to the economic uncertainty as markets look forward to new data. The technical outlook for gold shows stability above $4,250. There has been recent buying interest, indicating a limited chance of significant decline. Support is found around $4,200, while resistance at $4,300 could lead to another test of all-time highs. The Relative Strength Index suggests continued consolidation above 50, keeping a bullish trend intact. Gold is seen as a safe haven in turbulent times, acting as a hedge against inflation and currency decline. Central banks are major buyers, with purchases reaching 1,136 tonnes in 2022. Gold often rises when the US Dollar weakens and interest rates are low. With gold trading close to its high of $4,380, volatility is increasing, providing opportunities for derivative traders. Implied volatility on gold options has recently surpassed 20%, much higher than the 90-day average, indicating that the market expects significant price fluctuations in the coming weeks. This makes options strategies especially relevant for navigating the uncertain landscape.

Strategies for Traders

Traders expecting a bullish breakout above $4,380, potentially due to stalled US-China talks or a dovish surprise from the FOMC on October 30th, might consider buying call options. An out-of-the-money call with a $4,400 strike price allows one to profit from a strong upward movement with limited risk. We have seen how dovish Fed shifts can power gold rallies, like the one in late 2023. On the other hand, those who think the recent dip is just the start of a larger correction should consider put options to protect against losses or to speculate on a downturn. A sharp sell-off on positive trade comments has shown how quickly market sentiment can change, making a put option with a strike below the $4,200 support level a smart move. A resolution to the US government shutdown or successful trade talks in Malaysia could easily cause this type of shift. With major events on the horizon, including the upcoming CPI data and the FOMC meeting, a long straddle strategy could be beneficial. This approach involves purchasing both a call and a put option at the same strike price, allowing profit from a large price move in either direction regardless of the reason. This strategy works well for high-volatility situations where the outcome is uncertain but expected to have a significant effect. Supporting the bullish case is strong, ongoing demand from central banks and substantial inflows into gold-backed ETFs. We observed this trend in 2022 and 2023 when annual net purchases by central banks exceeded 1,000 tonnes, establishing a strong market foundation. This support implies that selling put credit spreads below important technical levels could be a wise strategy for collecting premiums, betting that these major buyers will intervene in case of significant price drops. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now