Fed Policies and US-China Trade Developments

The Fed plans to stop reducing its balance sheet by December, marking the end of quantitative tightening. Although Powell has been cautious about future rate changes, the USD is still under pressure, which impacts gold’s appeal. Traders are looking for comments from FOMC members about future interest rates, influencing both the USD and gold. Gold has had a hard time maintaining levels above key Fibonacci retracement points after a recent drop. If it can’t hold these technical levels, sellers may emerge near $4,000. If gold dips below $3,950, it may fall further to critical support areas around $3,900 and lower. Now that gold has regained the $4,000 mark, the market is stuck between two competing forces. The ongoing US government shutdown is hurting the dollar and increasing gold’s attractiveness as a safe haven. However, the Federal Reserve is hesitant to suggest any further rate cuts, which helps stabilize the dollar and limits gold’s potential rise. The economic risks from the shutdown are becoming clearer and are worth watching. Recent estimates from the Congressional Budget Office indicate a possible 0.5% hit to fourth-quarter GDP if the shutdown lasts through November. This reinforces negative feelings for the US economy, and consequently, for the dollar.

Inflation Figures and Market Strategies

Despite this, the Fed’s strong stance is backed by new inflation data. The Consumer Price Index for September 2025 stood at 3.1%, slightly higher than expected, making it tough for the Fed to consider another rate cut in December. This disagreement is a major cause of current market uncertainty. For derivative traders, this situation hints at high implied volatility in the coming weeks. We recommend strategies that can profit from sharp price movements, in either direction. Options like long straddles or strangles on gold futures or major gold ETFs may prove effective. Historically, during times of uncertainty like the 2011 debt ceiling crisis and the early pandemic days in 2020, gold experienced wild price swings. We anticipate a similar scenario, creating opportunities for traders who are ready for volatility rather than a specific market direction. The CBOE Gold Volatility Index (GVZ) has risen to 18.5, its highest in three months, indicating this market tension. Traders might consider buying puts with strike prices below the critical $3,900 support level to protect against losing current gains. Alternatively, call options with strikes above the $4,016 moving average could capitalize on gains if the dollar weakens. The goal is to be set for a breakout from the current range. The Dollar Index (DXY) is the key indicator for any gold-related trade. It has struggled to break past the 107.50 level several times this month. A significant drop below the 106.00 support level could likely signal gold’s next major rise toward the $4,100 mark. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now