Gold prices rose during early European trading on Monday as worries about the US economy increased the demand for safe-haven assets. The price of gold soared to nearly $4,075, fueled by expectations of US interest rate cuts amid disappointing private job reports and a negative Consumer Sentiment Index from the University of Michigan. At the same time, the chances of the US government shutdown coming to an end could hurt gold’s safe-haven appeal. US senators are discussing a potential agreement to resolve the ongoing government shutdown, which is the longest on record. Additionally, reduced trade tensions between the US and China, highlighted by China lifting certain export bans, may further affect gold’s attractiveness.

Key Economic Indicators

Market attention will focus on important economic indicators, such as the US Consumer Price Index for October, which is expected to rise. Retail Sales figures released later this week will also hold significance. The Federal Reserve meets eight times a year to decide on interest rate adjustments based on economic performance and employment goals. To influence the economy, the Fed uses tactics like Quantitative Easing (QE) and Quantitative Tightening (QT). QE involves buying high-quality bonds to boost credit availability, while QT means stopping these purchases, impacting the value of the US Dollar. Given the mixed signals, we should be ready for increased market volatility in the upcoming weeks. The main factor appears to be a weakening US economic outlook, which enhances the appeal of gold as a secure investment. This view is backed by the recent jobs report from early November 2025, which showed only 95,000 new private-sector jobs were created, far below the anticipated 150,000. This slowdown is raising expectations that the Federal Reserve might cut interest rates in December, with the likelihood of a rate cut climbing to about 66%. This surge in probability comes after the University of Michigan Consumer Sentiment Index dropped to its lowest point since the high-inflation era of mid-2022. Lower rates would decrease the opportunity cost of holding non-interest-earning assets like gold, contributing to its strength above $4,000.

Potential Headwinds And Trading Strategies

However, potential setbacks could quickly reverse these gains. A confirmed agreement to end the government shutdown, which has lasted over 40 days, would likely ease market fears and possibly lead to a sell-off in gold. Similarly, China’s recent lifting of export bans on essential materials indicates improving trade relations, which could decrease the demand for safe-haven assets. For options traders, this market environment suggests that buying volatility may be a smart move. With key US inflation and retail sales data set to be released this week, any major surprises could lead to significant moves in gold’s price. Using strategies like straddles or strangles could be beneficial if gold breaks decisively out of its current range, regardless of the direction. From a technical perspective, a sustained rise above the recent high of $4,161 could signal a good opportunity to increase bullish positions, such as long calls, targeting the $4,200 level. On the other hand, if gold falls below the psychological barrier of $4,000, it may indicate that bearish factors are taking over. In such a case, we might consider put options or bear put spreads, with initial targets near $3,835. The upcoming Consumer Price Index report on Thursday is a critical event to watch. The September 2025 report indicated a decrease in annual inflation to 2.8%. If this trend continues with another soft reading for October, it will strengthen the case for a Fed rate cut. This could lead to higher gold prices, making bullish derivative strategies more appealing ahead of the report. Create your live VT Markets account and start trading now.

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