Gold prices have hit a new high of $4,078 during the Asian session, driven by economic uncertainties. Worries about a long U.S. government shutdown and tensions between the U.S. and China have increased the demand for gold, a safe-haven asset. The U.S. Federal Reserve is expected to lower interest rates two more times this year, which weakens the U.S. Dollar and supports gold prices. However, trading could be limited due to low liquidity caused by a U.S. bank holiday, even as trade tariff concerns and geopolitical risks continue.

US-China Trade Tensions Increase

President Trump’s threats of a 100% tariff on Chinese exports and new software export controls starting November 1 have impacted global market confidence. Although Trump softened his approach over the weekend, uncertainty remains. This has pushed gold prices higher ahead of discussions with China’s Xi Jinping. The U.S. government shutdown is ongoing, with no agreement in Congress and federal workers receiving layoff notices. Possible military actions involving Tomahawk missiles in the Russia-Ukraine conflict are also contributing to increased gold demand. According to the CME FedWatch tool, there is a high probability of interest rate cuts in October and December at 96% and 87%. This situation supports gold prices because the demand for the U.S. Dollar is low. Some technical indicators show that gold may be overbought, suggesting it might need some time to consolidate. With gold records now surpassing $4,070, the main influences remain geopolitical risks and the expectation of a more accommodating Federal Reserve. The ongoing government shutdown and rising trade tensions with China suggest that the demand for safe-haven assets like gold will persist. Therefore, betting against gold in this situation is risky.

Interest Rate Cuts and Inflation Data

The market is almost completely factoring in two more interest rate cuts by the end of 2025, marking a significant shift from the previous rate-hiking cycle that ended in 2023. This expectation is supported by recent economic data; the Consumer Price Index (CPI) report for September 2025 showed core inflation slowing to 2.9%, giving the Fed more leeway to ease policies. This ongoing pressure on the U.S. Dollar serves to boost gold prices. Renewed trade tensions with China add to the uncertainty, especially as the U.S. trade deficit with China has remained around $30 billion per month through the summer of 2025. Additionally, central banks continue to buy gold, which has been a significant trend in 2024, providing strong support for the market. This steady demand suggests that any major drops in gold prices will likely be met with strong buying interest. For those trading derivatives, this is a good time to use options to manage risk while maintaining a positive outlook. Purchasing call options on gold futures or related ETFs is a way to benefit from further price rises while limiting losses to the premium paid. Given the current market conditions, this is a wiser strategy than holding long futures positions. As increased market uncertainty has raised implied volatility, selling out-of-the-money put options could also be a smart way to generate income. By selling puts at levels like the $3,950 mark, we can collect premiums while betting that the price trend will hold. This allows us to profit even if gold remains steady or slightly declines, as long as it stays above the chosen strike price. Create your live VT Markets account and start trading now.

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