### Gold’s Surge Amid US-China Tensions Gold has risen above $4,100 as tensions between the US and China grow, making it more attractive as a safe investment. XAU/USD has increased nearly 2% and is currently priced at $4,095, with fears of further escalation among traders driving demand. Concerns about global politics and central bank purchases are influencing gold prices. President Trump recently hinted at imposing 100% tariffs on Chinese imports, but later eased his threats. A meeting with President Xi Jinping is still anticipated. Economic reports are being overshadowed by the government shutdown and actions from the Federal Reserve. The US Dollar Index has increased by 0.35% to 98.24, while the yield on the 10-year Treasury note has fallen to 4.059%. Analysts predict that gold could reach $5,000 by 2026, driven by increasing demand from ETFs and central banks. There is a 97% likelihood that the Fed will cut interest rates by October 29. The outlook for gold remains strong, with the Relative Strength Index (RSI) showing robust buying interest. Central banks are significant holders of gold, purchasing 1,136 tonnes worth about $70 billion in 2022. Gold tends to rise when the US Dollar and Treasury yields fall. During times of geopolitical unrest, gold’s role as a safe-haven asset is reinforced. ### Options Strategies for Gold Trading With gold surpassing $4,100, consider buying call options to benefit from further price increases while capping your risk. The ongoing tensions and government shutdown are supporting safe-haven investments. Given the momentum, strategies like bull call spreads can help lower your entry costs. Right now, implied volatility is likely very high, making options pricier for buyers. It may be a good idea to sell out-of-the-money put options or use put credit spreads to earn premium, betting that gold will remain above key support levels, like $4,000. This approach takes advantage of market fear, which inflates option prices. The trend of central bank buying establishes a strong foundation for gold prices. In 2022, they added a record 1,136 tonnes, with reports from the World Gold Council indicating that this buying trend continued into 2023 and 2024. This steady demand implies that price drops will likely be seen as buying opportunities by major global organizations. The market expects a 97% chance of a Federal Reserve rate cut on October 29, which could significantly impact gold prices. Looking back at the Fed’s policy change in 2019, the shift toward lower rates led to a prolonged gold rally. This historical context suggests that holding long positions in gold before the upcoming FOMC meeting could be a wise move. The current US-China trade tensions are similar to those of 2018-2019, when rising tariffs caused gold prices to increase by over 20%. If the meeting between Trump and Xi Jinping goes poorly later this month, we might see a similar surge. Therefore, maintaining long exposure through futures contracts or long-dated call options is advisable. Despite the optimistic outlook, the RSI indicates that gold might be overbought, raising the risk of a short-term drop. To safeguard against this, consider buying protective puts with a strike price below the psychological mark of $4,000. This serves as insurance against a sudden positive resolution in trade talks or an unexpected end to the government shutdown. ### Global Economic Dynamics and Gold Rally It’s unusual for both gold and the US Dollar Index to rise simultaneously, signaling a strong flight to safety. We saw this behavior during the height of the 2008 financial crisis. Traders should closely monitor the US 10-year yield; its continued drop below 4% reflects deep economic concerns, likely to sustain the gold rally. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now