Gold prices have risen to around $3,882 as the US government remains shut down and expectations grow that the Federal Reserve will continue to ease monetary policy. The ISM Services PMI stayed at 50, while S&P Global indicated uneven economic growth. This prolonged shutdown has led to fiscal uncertainty, encouraging traders to take cautious positions.

Gold Market Movement

During the North American session, gold increased by 0.70%, reaching $3,882 after hitting a daily low of $3,838. The US economic news was sparse, and mixed PMI results barely affected gold prices. The absence of new data, caused by the shutdown, led traders to focus more on comments from the Federal Reserve. Gold looks strong and aims to test the $3,896 level again. The US Senate plans another vote, but current political efforts seem unlikely to succeed. Gold’s defensive stance aligns with a recovering US Dollar. The US Dollar Index remains steady at 97.77, while Treasury yields are rising. Gold has an inverse relationship with the US Dollar and Treasury bonds. When the Dollar weakens, gold prices often rise. In 2022, central banks acquired 1,136 tonnes of gold, highlighting its importance as a reserve asset. Gold prices are influenced by geopolitical events and interest rates, with a robust Dollar usually stabilizing the price of gold. The ongoing US government shutdown has left traders lacking vital data like the Nonfarm Payrolls. As a result, they are relying on political news and Fed speeches instead of solid economic indicators. The market’s reaction to the mixed PMI data illustrates how sensitive sentiment has become due to this lack of information.

Trading Strategies Amidst Uncertainty

Traders are currently pricing in a 96% chance of a rate cut this month, which is already reflected in gold prices. The real risk—and opportunity for traders—lies in unexpected events, such as a quick resolution in Washington followed by surprisingly strong economic data. This makes buying options to hedge or speculate on significant price moves more appealing than simply holding futures. We saw a similar trend during the 2018-2019 shutdown when gold rose over 4% due to ongoing political uncertainty. Current implied volatility for gold options has surged to an impressive six-month high of 18%, signaling that the market is preparing for a significant price move from its current range. Traders should consider strategies that capitalize on this expected rise in volatility. The current price range between $3,830 and $3,880 shows built-up energy, especially as the Relative Strength Index has plateaued in overbought territory. This price action suggests a breakout could happen once a deal is reached in Washington, and delayed data is released. Long straddles or strangles could serve as effective strategies to capitalize on this potential move without guessing its direction. While the shutdown benefits gold prices, the stable Dollar and slightly rising real yields act as a counterforce, preventing prices from reaching record highs. However, strong underlying support is evident, as recent data from the World Gold Council indicates that central banks continued to make record purchases, adding another 45 tonnes to global reserves last month. This steady demand should help limit any significant drop in prices. In the coming weeks, the focus will be on volatility rather than a specific price direction. Once the shutdown concludes, the delayed release of critical jobs data will likely prompt a breakout, either up or down. Thus, traders should prepare for a surge in volatility instead of a gradual price increase. Create your live VT Markets account and start trading now.

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