Gold prices have risen above $4,050 due to worries about global growth and uncertainty about the US economy. This rise was triggered by weak private job data and a low Consumer Sentiment Index from the University of Michigan. Lower interest rates may support gold prices because they make holding gold, which does not earn interest, less costly. On the other hand, progress in resolving the US government shutdown could reduce the demand for gold as a safe investment. US senators are discussing a deal that might end this shutdown, which is the longest in history. Additionally, reduced tensions in US-China trade could also impact gold prices soon.

Investors Analyze Economic Data

Investors are looking at the US Consumer Price Index (CPI) inflation reports, which are expected to show a 0.2% increase in October. The core CPI is predicted to rise by 0.3% during the same period. Later this week, attention will shift to US Retail Sales data. Gold is showing positive signs, staying strong above the 100-day Exponential Moving Average, with a 14-day Relative Strength Index above 55. If gold trades consistently above $4,161, prices could rise to $4,200. However, trading below $4,000 might point towards a decline to $3,835 or even $3,705. As the week begins, gold is trading above $4,050 due to concerns about the US economy. The October jobs report indicated that only 150,000 jobs were added, which was below expectations. This weak data, alongside consumer sentiment hitting a low not seen since mid-2022, is leading traders to expect a Federal Reserve rate cut next month. Nonetheless, two major risks could push prices down. A potential agreement to end the longest government shutdown since the 2018-2019 break could lower the demand for safe-haven assets like gold. Furthermore, signs of improved relations between the US and China might also decrease gold’s attractiveness.

Possible Effects of CPI Data

This week, we are focusing on the October CPI data, which will be released on Thursday, and Retail Sales on Friday. If inflation exceeds the expected 0.2% monthly rise, it could complicate the likelihood of a December rate cut, similar to how high inflation in 2022 forced the Fed to act aggressively. A stronger dollar could follow, creating immediate challenges for gold prices. For traders dealing in derivatives, this situation presents a classic opportunity for volatility. Buying call options with strike prices at $4,200 could be profitable if the economic data remains weak. This aligns with the current technical momentum, showing prices firmly above the 100-day moving average. However, if a deal to end the shutdown is confirmed, or if inflation data surprises positively, market sentiment could change quickly. In that case, we would consider buying put options to protect against a drop below the important $4,000 level. A significant dip below this mark could lead to a quick test of lower support near $3,835. Create your live VT Markets account and start trading now.

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