Gold prices jumped to $4,278 after the Federal Reserve cut interest rates by 25 basis points. Even though the Fed indicated a pause in rate cuts, gold rallied due to higher jobless claims, which increased demand for safe-haven assets. In September, the US trade deficit narrowed. Notable discussions continue between Ukraine, the US, and Russia. US Treasury yields dropped, which supported gold prices, while the US Dollar Index decreased by 0.44% to 98.19.

Initial Jobless Claims and Trade Balance

Initial jobless claims rose to 236,000, while continuing claims fell, suggesting some stabilization. The trade balance improved to –$52.8 billion in September, compared to –$59.3 billion in August. Fed Chair Jerome Powell mentioned a “wait and see” approach, keeping monetary policy the same while noting potential employment risks. Gold appears strong technically, with bullish momentum; closing above $4,300 could lead to the $4,350 target next. Gold’s value as a hedge against currency devaluation has led central banks to buy 1,136 tonnes in 2022. Gold’s price tends to rise when the US Dollar and Treasuries fall, especially during geopolitical tensions or recession concerns. The Fed’s rate cut has pushed gold out of its previous range, reaching new highs. With the US Dollar Index at 98.19 and 10-year yields down, this is a great time for buying gold. We see this as a buy signal, making call options on gold ETFs an appealing option as prices move toward $4,300.

Market Response to Labor Data and Fed Policy

The increase in weekly jobless claims to 236,000 is the current market focus, overshadowing the Fed’s pause plan. Traders seem to believe that a softer labor market will lead the Fed to continue easing rates in early 2026. This mirrors events from 2019 when the Fed moved from rate hikes to cuts, sparking a long rally in precious metals. However, we should keep an eye on potential risks, particularly the peace talks related to the Ukraine conflict. A successful deal could reduce demand for safe-haven assets and lead to a sharp pullback from current high prices. We suggest protecting long positions by buying put options with strike prices near the $4,200 support level to shield against sudden declines. The breakout has caused an increase in implied volatility for gold options, making them pricier. This situation can be advantageous for selling premium, such as writing covered calls on existing gold holdings or creating bear call spreads above the record high of $4,381. This approach allows us to profit if gold’s rally slows down or slightly retracts, which could happen based on overbought technical readings. Create your live VT Markets account and start trading now.

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