Gold prices rose over 2% on Monday as hopes for a Federal Reserve rate cut in December increased. Even with news about a possible reopening of the US government boosting the US Dollar, gold kept its gains, trading at $4,092. The US Senate approved a plan to reopen the government, with support from Democratic lawmakers. President Donald Trump is optimistic about this development. Senate Republican leader John Thune seeks a quick vote on temporary funding, and House Speaker Mike Johnson is working to ensure the bill is voted on by Wednesday. Recent US economic data showed signs of slowing down, and the Fedwatch Tool indicates a 61% chance of a rate cut in December, a decrease from 66.8% the week before.

Market Dynamics

Gold continued to rise despite the US Dollar Index recovering, which climbed over 0.12% to 99.67. US Treasury yields remained stable, while US real yields, which oppose gold, increased by nearly two basis points. The University of Michigan’s Consumer Sentiment Index fell, yet gold exchange-traded funds (ETFs) experienced inflows of 54.9 tonnes in October, alongside notable job cuts for the month. Gold is currently on a bullish path, aiming for the $4,100 level. The Relative Strength Index supports this upward trend, with major resistance at $4,100 and support at $4,000. Gold is rallying towards the $4,100 mark, mainly driven by market expectations of a Federal Reserve rate cut in December. Although the US Dollar has strengthened and some Fed officials have made hawkish comments, traders still believe in the 61% probability of a rate cut. This belief is keeping demand for gold strong. Due to this bullish trend, derivative traders may want to consider call options to take advantage of a possible breakout. With the CBOE Volatility Index (VIX) around 17, purchasing calls with a strike price just above $4,100 could position traders for further gains towards the October high of $4,161. This approach anticipates that the market will continue to predict easier monetary policy ahead of the Fed’s actual decision.

Investment Strategies

Nonetheless, there is a risk of a reversal, as the dollar’s recovery poses a challenge. The latest official Consumer Price Index report for October 2025 showed inflation at 3.2%, reinforcing the Fed’s cautious approach. This makes buying put options with a strike price below the psychological support level of $4,000 a sensible hedge against a hawkish surprise. The mixed economic signals create opportunities in the options market. The economy grew unexpectedly at a strong 4.9% annualized rate in the third quarter of 2025, contrasting with a drop in consumer sentiment and an increase in layoffs. This divergence suggests that volatility may rise as new data is released in the coming weeks. Historically, we’ve seen similar situations before; in 2019, gold rose for months in anticipation of the Fed easing policies. This suggests that as long as rate cut expectations remain high, the market will continue to favor gold. The focus will be on whether upcoming inflation or job data significantly alters these expectations. Create your live VT Markets account and start trading now.

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