Gold has hit a record high, now trading over $4,100. This surge is driven by increased demand for gold as a safe investment amid worries about US-China trade tensions. Currently, the price is $4,094, up more than 1.80%. This marks the ninth week in a row that gold has gained value. The global markets are feeling the strain after the US President announced 100% tariffs on Chinese imports starting 1 November, as well as China’s limits on exporting rare earth elements. While talks were hinted at over the weekend, uncertainty remains, making gold a safer choice for investors.

Interest Rates And Treasury Yields

The possibility of interest rate cuts from the Federal Reserve is keeping Treasury yields low, which supports gold’s rise. Ongoing global issues, like the Russia-Ukraine conflict and the US government shutdown, are driving more people towards gold as a secure option. The US Dollar Index has risen towards 99.00, as President Trump’s somewhat softer stance has calmed the markets a bit. At the same time, US Treasury yields have dropped, affecting how investors feel. There were no major US economic reports released on Monday due to a holiday, but coming discussions from the Federal Reserve and updated economic reports are significant. With gold prices at record highs, using derivatives can help maintain long positions while managing risk. Buying call options on gold futures or ETFs like SPDR Gold Shares (GLD) can be a way to benefit from further increases while controlling losses. Current geopolitical tensions strongly support this positive outlook for gold. The interest in gold isn’t just a quick reaction to trade news; it represents a long-term trend. Central banks have been key buyers, with the World Gold Council noting that they added a historic 1,082 tonnes to their reserves in 2023, following 1,136 tonnes in 2022. This ongoing institutional demand helps stabilize prices, making large sell-offs less likely.

Market Volatility And Strategies

With rising tensions between the US and China and a government shutdown, implied volatility in the options market is very high. This situation is reminiscent of the fluctuations seen in the CBOE Gold Volatility Index (GVZ) when the Russia-Ukraine conflict began in early 2022. Traders might consider strategies like bull call spreads to lower the high cost of options, or for those willing to take more risk, selling out-of-the-money puts can generate profits if prices stay above important support levels. It’s important to recognize the link between gold and falling interest rates, especially as the market expects two more cuts from the Fed. With US Treasury yields at four-week lows, the appeal of non-yielding assets like gold increases. A complementary strategy could involve going long on Treasury futures, as both gold and Treasuries benefit from safe-haven demand and anticipated easier monetary policy. The US Dollar presents a more complicated situation. While it competes as a safe-haven asset and could limit gold’s rise, potential Fed rate cuts pose a challenge for the dollar. This echoes the Fed’s shift in policy in 2019 when similar trade issues arose. We’ll need to pay close attention to Fed Chair Powell’s comments this week, as a dovish tone might weaken the dollar and encourage gold prices to rise further. The continuing government shutdown adds more economic uncertainty, which should not be overlooked. The shutdown lasting 35 days in late 2018 and early 2019 resulted in an estimated $11 billion loss in US GDP, according to the Congressional Budget Office. As the current shutdown stretches on, economic damage will grow, increasing the demand for safe investments and bolstering the bullish case for gold. Create your live VT Markets account and start trading now.

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