Gold prices have risen to nearly $3,990 during Friday’s early Asian session. The ongoing US government shutdown, now in its sixth week, is a major factor driving this increase. Uncertainty surrounding US tariffs is also raising demand for safe-haven assets like gold. This shutdown is the longest in US history and is weakening the US Dollar. In October, employers cut over 150,000 jobs, marking the largest job loss in more than 20 years. These job cuts have led the Federal Reserve to lower interest rates, which typically benefits gold as it does not provide yield.

Central Banks Increasing Gold Reserves

Central banks, key buyers of gold, added 1,136 tonnes worth about $70 billion to their reserves in 2022, the most ever recorded. Countries like China, India, and Turkey are rapidly increasing their gold holdings. Gold usually moves opposite to the US Dollar and is influenced by geopolitical tensions and economic fears. As a non-yielding asset, it thrives when interest rates are low. Conversely, a strong US Dollar or higher interest rates tend to push its price down. The price of gold also depends on global economic factors and how investors react to market conditions. With gold holding close to the critical $4,000 mark, the ongoing US government shutdown and weak job report for October are creating a strong bullish environment. This uncertainty suggests high volatility will continue for the foreseeable future. For traders, this means options can be costly, but there are opportunities for premium sellers. The upward momentum suggests that buying call options is a simple strategy for betting on a breakout above $4,000. However, due to high implied volatility, a safer approach may be to use bull call spreads. This strategy lowers upfront costs by selling a higher-strike call, though it also limits potential profits.

Impact of a Weaker US Dollar

This price movement is supported by a weaker US Dollar, with the DXY recently dropping below 98 for the first time in over a year. A similar trend occurred during the 2018-2019 government shutdown when gold steadily gained as uncertainty weakened the dollar. This historical pattern supports confidence that the current demand for safe-haven assets is justified. Today’s Fedspeak could present immediate risk; any hints of hawkishness might trigger a quick sell-off from record highs. Traders expecting big price changes but uncertain of the direction might consider using long strangles to profit from sharp moves in either direction. This strategy is also wise ahead of the upcoming flash U-Mich Consumer Sentiment data. Recent market data shows that open interest in COMEX Gold futures has risen over 15% in the past month, indicating that new money is backing this rally. The Cboe Gold Volatility Index (GVZ) is currently high at around 26, reflecting the market’s expectation of significant price fluctuations. These conditions suggest that while the trend is upward, positions should be carefully managed due to the potential for swift reversals. Create your live VT Markets account and start trading now.

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