**Economic Concerns Increasing** Gold prices are steady, staying above $3,850 due to worries about a US government shutdown and expectations for lower Federal Reserve interest rates. On Friday, gold traded around $3,875, recovering from an intraday low of about $3,838 as the US dollar weakened slightly. Gold remains a safe-haven option as the US government shutdown continues and the Federal Reserve faces important decisions. The ISM Services PMI, which measures economic activity, fell to 50.0 in September from 52.0 in August, indicating a slowing economy. Further signs of economic decline are evident, with the New Orders Index dropping to 50.4 from 56.0, and the Employment Index remaining in contraction at 47.2. Conversely, the S&P Global Services PMI slightly fell to 54.2 in September, suggesting mild economic expansion. Concerns for the US economy are growing as the government deadlock could lead to a $15 billion loss in GDP each week, risking thousands of jobs. Delays in data releases could also hinder Federal Reserve policy decisions, especially with the Nonfarm Payroll report and possible postponement of the Consumer Price Index. Technical indicators show gold stabilizing, with buying interest around the $3,860-$3,865 range. If prices break below important resistance levels, deeper corrections may occur, though upward movement is still a possibility. **Federal Reserve Uncertainty** With the US government shutdown and weakening economic data, many investors are seeking safety. Gold remains near record highs, buoyed by the expectation of a Federal Reserve rate cut later this month. The ISM Services PMI’s drop to 50.0 points to economic stagnation and adds to cautious views. The political deadlock in Washington complicates the Federal Reserve’s actions by delaying essential data, such as the Nonfarm Payrolls report. This uncertainty has increased bets on a rate cut, with futures markets showing a greater than 70% chance of a 25-basis-point reduction at the October 28-29 meeting. This scenario is likely to keep pressure on the US dollar, boosting gold prices. Looking back at the 35-day shutdown from 2018-2019 can help us understand the potential economic impact. That shutdown caused a roughly 0.2% decline in quarterly GDP, and the current situation could have a similar or worse effect, making it harder for the Fed to maintain current interest rates. The longer the shutdown lasts, the greater the risks to the economy and financial markets. In the coming weeks, traders should expect higher market volatility. The CBOE Volatility Index (VIX) has risen above 20, reflecting increased investor anxiety similar to past debt ceiling crises. Buying call options on the VIX or put options on equity index ETFs like SPY could help protect against a market downturn. For direct exposure to the positive gold outlook, traders might consider call options on gold futures or the GLD ETF. This approach allows participation in potential gains as gold approaches its all-time high near $3,896 while managing risk in case of a sudden drop. The ongoing buying interest around $3,820 indicates a solid support level for now. A weakening US dollar also opens up opportunities in currency markets. The Dollar Index (DXY) is trading weakly around 97.81, making it wise to buy put options on the dollar or call options on safe-haven currencies like the Swiss Franc. This strategy aligns with the overall trend of risk aversion and a more dovish Federal Reserve. Create your live VT Markets account and start trading now.

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