Gold remains strong, staying above $4,000, even with mixed signals from the market. Concerns about a long US government shutdown and questions about tariffs are pushing investors toward gold, which is benefiting from weak stock markets. A private survey showed job losses in the US for October, hinting at possible Federal Reserve rate cuts. While there has been some buying of the US Dollar, the overall situation still favors higher gold prices. Traders are looking at gold potentially rising to between $4,020 and $4,030.

Impact of the Government Shutdown

The US government shutdown has now lasted 38 days, increasing economic uncertainties. The Congressional Budget Office estimates a GDP drop of up to 2%. There are also concerns about the legality of tariffs imposed during the emergency, adding to the uncertainty. The chance of the Fed cutting rates in December is now at 67%, up from 60%. Despite some US Dollar buying, gold has gained as the Dollar weakens. Gold’s performance relies on factors like political stability, interest rates, and the strength of the USD. Central banks play a big role in gold demand, with notable purchases from China, India, and Turkey. Gold tends to rise when the USD weakens or during times of economic stress. With gold currently holding above $4,000, we should continue to focus on safe-haven demand. The ongoing government shutdown has surpassed the 35-day shutdown we experienced in 2018-2019, creating significant economic uncertainty. This ongoing deadlock, along with Supreme Court questions about presidential tariff powers, keeps investors anxious and stock prices low. We see clear signs of a slowing US economy, paving the way for more bets on another Federal Reserve rate cut in December. Private payroll data showed job losses in October, contrasting sharply with stable monthly job gains earlier in 2024. This weak labor market reinforces the 67% likelihood of a rate cut next month, making gold, a non-yielding asset, more appealing.

Derivative Trading Strategies

For those trading derivatives, this environment suggests bullish strategies, but with caution. A solid move above the $4,020-$4,030 resistance level could signal opportunities to buy call options or enter long futures contracts, aiming for $4,100. Economic concerns strongly support this strategy in the weeks ahead. However, we must also be prepared for a reversal if political sentiments change. A sudden end to the government shutdown could lead to a quick sell-off, so it’s wise to monitor the $3,965 support level. Buying put options with strike prices below this level, maybe around $3,900, could provide a safety net against an unexpected shift towards risk-taking. The tension between a safe-haven dollar and a dovish Fed offers the chance for sharp price fluctuations. The US Dollar Index (DXY) has been unstable, recently resting around 105.50, reflecting this uncertainty. This environment suggests that traders could benefit from a volatility play, like a long straddle, which is likely to be effective if significant price movements occur, though direction remains unclear. Create your live VT Markets account and start trading now.

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