Impact of US Economic Policies

The U.S. government shutdown is now in its fourth week. The Senate has not managed to agree on funding for the 11th time. President Trump has eased his tough stance on tariffs but expects positive results from a possible meeting with China’s President Xi Jinping. Next week, the U.S. central bank is likely to lower interest rates, with a 99% chance of another cut in December, according to the CME FedWatch tool. Gold is highlighted as a safe investment, inversely related to the U.S. Dollar and market risks. As of October 22, 2025, uncertainty in the financial markets is rising, which favors safe-haven investments like gold. Ongoing geopolitical tensions and worries about a slowdown in global growth are making riskier assets, such as stocks, less appealing. In such times, gold is a reliable store of value. The recent actions of the Federal Reserve are important to consider. The September 2025 Consumer Price Index (CPI) report showed core inflation at a stubborn 3.1%. Markets now see a 90% chance that the Fed will keep rates steady in November. However, futures markets suggest an increasing likelihood of a rate cut in early 2026, which would make holding non-yielding gold less costly. Looking back at the political turmoil of the late 2010s, we can see how quickly things can change. The lengthy government shutdown from late 2018 to early 2019 and ongoing trade tensions between the U.S. and China caused significant market fluctuations. Today’s political deadlock could similarly lead to a rush towards safer investments, pushing gold prices higher, as seen during those times.

Strategies for Derivative Traders

For derivative traders, now might be a good time to prepare for potential gains in the coming weeks. Buying gold call options could be an effective strategy, especially if unexpected geopolitical events or dovish signals from the Fed arise. Increased market uncertainty has also raised implied volatility, making option strategies more intriguing. The performance of the U.S. Dollar supports gold’s value as well. The Dollar Index (DXY) has dropped from earlier highs this year and is trading around the 103 level. A weaker dollar usually benefits gold, making it more affordable for international buyers and hence more attractive. Moreover, the trend of central banks buying gold keeps prices stable. Following record purchases in 2022, central banks, especially in emerging markets, have continued to buy gold through 2024 and 2025 to diversify their reserves. This steady demand is a strong long-term signal supporting gold prices against significant declines. Create your live VT Markets account and start trading now.

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