Trade Concerns and Tariffs

President Trump’s recent executive order introduced tariffs on imports from nearly 70 countries, raising trade worries and impacting the US Dollar. The tariffs range from 10% to 41%, with the possibility of even higher rates for significant trading partners like China if talks do not succeed. After the non-farm payroll (NFP) report, Treasury yields fell, with the 10-year yield around 4.24%. This drop makes holding Gold more attractive. Gold is seen as a safe haven, especially during times of geopolitical uncertainty and economic instability. Central banks in emerging economies, like China and India, are still increasing their Gold reserves. The weak jobs report and soaring gold prices indicate strong potential for bullish strategies in precious metals. The market now expects a high chance of a Fed rate cut in September, which usually weakens the dollar and drives up gold prices. Therefore, we should prepare for more gains in gold over the coming weeks. Supporting this outlook, recent data shows that the Dollar Index (DXY) has fallen below the important level of 95.00 for the first time in over a year. The latest Consumer Price Index (CPI) report from mid-July 2025 was slightly lower than expected, giving the Fed more reasons to ease monetary policy. These factors create a strong environment for non-yielding assets like gold.

Gold Derivative Strategy

We believe buying call options on gold futures or gold-backed ETFs is the best way to take advantage of this trend. With the potential for a significant price move after the September Fed meeting, we are considering call options with strike prices of $3,400 and $3,500 for October and November 2025 expirations. This strategy allows us to profit from continued gains while keeping our risks defined. This situation feels similar to the 2019-2020 period, when the Federal Reserve began cutting rates due to trade war fears. Back then, we saw gold rise over 30%. The current mix of a slowing US economy and renewed global trade tensions offers a similar strong chance for rising gold prices. The drop in Treasury yields strengthens our bullish outlook, as the 10-year yield at 4.24% significantly lowers the cost of holding gold. With yields falling, large institutional investors are more likely to move into gold as a safe-haven asset. We expect this trend to persist as expectations for rate cuts grow. Gold market volatility has increased, making options pricier. Therefore, we should also think about bull call spreads to reduce our initial costs. This strategy means buying a call option at a lower strike price while selling another call at a higher strike price. This caps our potential gains but lowers our upfront premium. Finally, strong institutional demand helps support the market. According to World Gold Council data for the second quarter of 2025, central banks, led by China and Turkey, added a net 270 metric tons to their reserves. This consistent buying shows that major global players are positioning themselves for longer-term dollar weakness and geopolitical risks. Create your live VT Markets account and start trading now.

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