Gold (XAU/USD) has fallen to below $4,000, hitting a two-week low as interest in safe-haven assets drops. It is currently trading at about $3,985, down 3% from last week’s peak of $4,381. Market sentiment has improved following positive news from US-China trade talks, with a preliminary framework agreement reported over the weekend. Additionally, President Trump has signed trade deals with Malaysia, Thailand, Vietnam, and Cambodia. The US government shutdown, now in its twenty-seventh day, is also affecting market confidence. Programs like SNAP and WIC could face delays if there is no resolution by November. As the week advances, traders are focused on central bank meetings, including those of the Federal Reserve, Bank of Canada, Bank of Japan, and European Central Bank. There’s a strong expectation of an interest rate cut from the Federal Reserve, with the CME FedWatch Tool indicating a 96.7% probability.

Gold Market Insights

Despite current market positivity, gold is facing challenges due to concerns over Trump’s trade policies. Technical analysis shows that gold may struggle below $4,100, with immediate support at $4,000. The Relative Strength Index (RSI) indicates ongoing bearish momentum, and if it falls below $4,000, it could drop to $3,950. Gold’s decline below the important $4,000 mark reflects a conflict between short-term risk appetite and overall monetary policy. This pullback from last week’s high results from recent headlines about the US-China trade framework, leading to some profit-taking. Traders should view this dip as a temporary change in sentiment rather than a long-term trend shift. We’ve seen similar patterns in past trade negotiations from 2019 and 2020, where initial optimism waned. This current trade framework might struggle before the Trump-Xi meeting later this week, making it risky to take aggressive short positions on gold. The market’s positive response may be exaggerated, and there could be opportunities for those betting on renewed uncertainty. The key event this week is the Federal Reserve meeting on Wednesday, where a 25-basis-point rate cut is almost certain. With the latest US CPI data for September 2025 coming in slightly below expectations at 3.1%, the Fed can justify continuing its easing policy. A rate cut to 4% would reduce the opportunity cost of holding non-yielding gold, providing solid support for its price.

Trading Strategies and Market Conditions

This situation sets the stage for increased volatility, making options strategies appealing. Traders might consider buying straddles or strangles to benefit from significant price movements after the Fed’s announcement and the trade meeting. The current low of $3,985 provides a clear point for derivative plays. For those with a specific outlook, a decisive break and close below $4,000 could indicate further losses, making put options targeting the $3,950 support level worthwhile. On the other hand, if the $4,000 mark holds and the Fed adopts a dovish tone, call options could be a good bet for a bounce back towards the $4,100 resistance area. The RSI is close to oversold territory, suggesting that downward momentum may be running out soon. It’s important to keep in mind the context of this bull market, which saw gold rise from under $2,000 in 2022 to over $4,300. This increase was driven by persistent inflation and significant growth in central bank balance sheets, including the Fed’s, which remains above $7 trillion. The current pullback is occurring within a strong long-term uptrend fueled by currency devaluation. Finally, the continuing US government shutdown, now at 27 days, provides additional support for safe havens. This duration is approaching the record 35-day shutdown from 2018-2019, estimated by the Congressional Budget Office to have reduced real GDP by 0.2%. If this deadlock persists, it will likely impact economic growth further and lead investors back towards gold. Create your live VT Markets account and start trading now.

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