Gold prices in India rose on Friday, going from 12,225.19 INR per gram to 12,322.78 INR. The price per tola also increased, reaching 143,737.90 INR from 142,592.20 INR. Concerns about the global economy and potential interest rate cuts by the US Federal Reserve boosted gold demand. Rising trade tensions between the US and China, along with a lengthy US government shutdown, made gold an attractive safe haven.

Geopolitical Impact on Gold

Geopolitical tensions, particularly between the US and Russia, along with talks of meetings between leaders, complicate the economic situation. Comments from Federal Reserve officials suggest possible rate cuts, which could weaken the dollar and further influence gold prices. In India, gold prices reflect global rates adjusted for local currency values. Local variations can occur, but prices are regularly updated to match market conditions. Central banks around the world buy large amounts of gold to diversify their reserves and strengthen their economies. Gold serves as a hedge against inflation and currency decline, typically moving in the opposite direction of the US Dollar and riskier assets. Interest rates also affect gold prices; lower rates make gold more appealing. Market factors, like the strength or weakness of the dollar, significantly impact gold buying habits.

Market Predictions and Strategy

Given the current market conditions, there is a strong argument for taking long positions in gold derivatives. Increasing US-China trade tensions, a dovish Federal Reserve, and ongoing geopolitical issues create favorable conditions for gold. These elements are raising the demand for safe investments, with gold being the main beneficiary. The market expects two 25-basis-point rate cuts from the Federal Reserve by the end of the year, which should continue to weaken the US Dollar. The CME FedWatch Tool shows over a 90% probability for a cut at the upcoming October 29th meeting. This follows the September jobs report that revealed lower-than-expected Non-Farm Payrolls, indicating a slowdown in the labor market. Implied volatility for gold options has increased, with the CBOE Gold ETF Volatility Index (GVZ) reaching a 12-month high last week. This resembles the volatility we saw during the banking sector stress in early 2024. Given these high premiums, traders might want to consider bull call spreads instead of outright calls, as this can reduce initial costs while still allowing for potential price gains. The upcoming meeting between President Trump and President Putin in Budapest poses a key risk that could affect this optimistic outlook. A surprise peace deal or significant easing of tensions in Ukraine could spark “risk-on” sentiment across markets, likely leading to a drop in gold prices. A similar, brief decrease in gold occurred after initial ceasefire talks in mid-2024, showing how sensitive the market can be. The strong link between gold and the US Dollar is crucial for this trade. This week, the US Dollar Index (DXY) dropped below the important 102.50 support level in anticipation of the Federal Reserve’s easing. Historically, after the Fed changed its policy in late 2023, the DXY fell over 4% in the next two months, while gold climbed nearly 8%, setting a clear precedent for the current situation. Create your live VT Markets account and start trading now.

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