Gold (XAU/USD) bounced back after dipping to the $4,280-$4,279 range and is now nearing an all-time high close to $4,350. It is on track for nine consecutive weeks of gains. Economic uncertainty, such as US-China trade tensions and a prolonged US government shutdown, has boosted demand for safe-haven assets like gold. Expectations of two more interest rate cuts by the US Federal Reserve this year have also made gold more appealing. A weaker US Dollar is supporting gold’s rise, although short-term charts show that gold may be overbought. Still, the trend indicates potential for more gains.

US-China Tensions

Tensions between the US and China have escalated with threats of tariffs and port fees, heightening fears of a trade war. The ongoing US government shutdown has increased the demand for gold as a safe haven. Geopolitical worries have also grown as Russia has struck in Ukraine, while diplomatic talks continue between Trump and Putin. Federal Reserve Chair Powell’s recent statements hinted at a more lenient monetary policy, fueling expectations for rate cuts. This has put pressure on the US Dollar. Market participants feel confident that the Fed will lower interest rates in upcoming meetings, which supports gold prices. Gold’s Relative Strength Index (RSI) is high, indicating that traders might take profits soon. However, support levels around $4,280-$4,235 could limit any declines. If gold breaks above $4,379-$4,400, it could strengthen the upward trend. Since gold is trading close to its record high of $4,350, the ideal strategy in the coming weeks is to ride the upward trend. The fundamental factors, such as geopolitical issues and a weak US dollar, remain strong and show no signs of lessening. Using call options can let traders benefit from further gains while defining their risks.

Federal Reserve Rate Cuts

The expectation of two more Federal Reserve rate cuts this year is energizing this rally. A similar pattern was seen in early 2024 when expectations for looser monetary policy allowed gold to surpass previous highs. The September Consumer Price Index (CPI) from 2025 shows inflation steady at 2.5%, giving the Fed a clear way to continue easing policy. Central bank buying is also a strong influence, providing a solid price base. Reports from the World Gold Council indicate that global central banks added another 250 tonnes to their reserves in the third quarter of 2025, continuing the aggressive purchases seen since 2022. This sustained institutional demand should help stabilize prices during any corrections. Nonetheless, traders should heed technical warnings, as the daily Relative Strength Index (RSI) indicates overbought conditions. This raises the chance of a sharp pullback as traders try to take profits. A smart strategy would be to buy out-of-the-money put options to protect long positions against a sudden drop below the $4,200 level. For traders who expect a big price movement but are unsure of which way it will go, the clash between strong fundamentals and overbought technicals presents an opportunity for volatility strategies. Implementing a long straddle, which means buying both a call and a put option at the same strike price, could be profitable if gold makes a significant move in either direction. This is a strategy to take advantage of a potential breakout or breakdown from these high levels. Create your live VT Markets account and start trading now.

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