Gold has climbed to $4,002, a rise of 0.64% during the North American session. This increase is driven by the ongoing US government shutdown and a general risk aversion in the markets. Over the week, gold’s price rose by 0.13%, serving as a protection against economic uncertainty. Signs of struggle in the US economy are evident in the University of Michigan’s preliminary Consumer Sentiment index for November, which is the lowest it has been since June 2022. The job market is also slowing, with over 150,000 layoffs recorded in October, the most in over 20 years.

Prime Market Data Impacts

According to the Prime Market Terminal, there is a 68% chance of a Federal Reserve rate cut in December. The US Dollar Index fell by 0.15% to 99.55, while the yield on the 10-year Treasury note remained steady at around 4.085%. Inflation expectations have changed slightly, with the one-year forecast dropping to 3.2%, while the five-year estimate stayed stable at 3%. In October, the World Gold Council reported 54.9 tonnes of gold entering ETFs, largely due to demand from North America and Asia, despite Europe seeing a decline. Gold’s future looks promising as technical indicators indicate bullish trends, although it remains sensitive to changes in US economic conditions and policy decisions. A rise above $4,000 could suggest even more gains. With gold now securely above $4,000, we observe typical safe-haven behavior triggered by the ongoing US government shutdown and hints of an economic slowdown. This uncertainty is causing significant market volatility, creating clear opportunities for derivatives. Traders should brace for sudden price changes as political and economic tensions escalate. The current 38-day government shutdown has outlasted the 35-day shutdown from 2018-2019, which the Congressional Budget Office estimated cost the economy $11 billion. This financial impact is raising market expectations, now showing nearly a 70% probability for a Federal Reserve rate cut in December. Following an aggressive rate hike cycle that concluded in 2024, this shift in policy is a key driver for gold prices.

Strategic Approaches for Traders

Recent employment data showing over 150,000 layoffs in October raises alarm, as it marks a steep decline from the resilient labor market of late 2024. This rapid job loss, combined with consumer sentiment hitting its lowest since mid-2022, indicates a quicker-than-expected economic weakening. These factors strongly support a move towards safer assets like gold. For those optimistic about gold, buying call options on gold or gold-related ETFs can be a straightforward method to gain potential upside while managing risk. Targeting strike prices near the 20-day moving average of $4,082 or even $4,100 could be a good strategy to take advantage of further momentum, providing a safety net if a government reopening deal is reached unexpectedly. Given the high level of uncertainty, we should also explore strategies benefiting from volatility itself, such as long straddles or strangles. A resolution to the shutdown or an unexpected Fed decision could lead to significant price swings. With implied volatility rising, these strategies allow traders to profit from big moves without needing to predict their direction. The weakening US Dollar, with the DXY dropping to 99.55, is a strong supporter for gold prices. As the Fed hints at possible rate cuts, the dollar may continue to weaken, making gold a more attractive option. This is occurring while 10-year Treasury yields remain low around 4.08%, reducing the cost of holding the non-yielding metal. It’s important to recognize the strong demand from institutional investors, which offers a solid price support. Throughout 2023 and 2024, global central banks made record-breaking purchases, adding hundreds of tonnes to their reserves. This persistent buying suggests major institutions see gold as a vital long-term investment in the current climate. Create your live VT Markets account and start trading now.

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