Gold has recently crossed the $4,000 threshold, trading around $4,056. This increase occurs amid global economic and political uncertainty and a cautious stance from the Federal Reserve. Even with a stronger US Dollar, political issues in France and Japan, along with a US government shutdown, have increased demand for Gold as a safe haven. Geopolitical threats, such as the conflict between Russia and Ukraine and tensions in the Middle East, have boosted interest in Bullion. Central banks plan to buy 1,000 metric tons of Gold by 2025 to diversify their reserves away from US Dollar assets. The current US government shutdown complicates the Fed’s policy decisions.

The US Dollar Index

The US Dollar Index has increased, influenced by political events in Europe and Japan. US Treasury yields are also impacted, with forecasts suggesting interest rate cuts may happen by December 2026. Analysts believe the Fed will reduce rates at the next meeting. Gold’s Relative Strength Index (RSI) indicates a possible pullback, with support at the $4,000 mark. Resistance levels are expected at $4,050 and $4,100. Gold is often favored in uncertain times as a reliable value and an inflation hedge, with central banks as major buyers. Gold’s price is influenced by various factors, including interest rates and movements in the US Dollar. With gold now priced above $4,000, the market shows signs of being overextended—a scenario not witnessed since the rally in the 1980s. The monthly RSI is above 90, indicating this upward trend may have been stretched historically. While strong reasons for buying exist, aggressively entering new long positions carries the risk of a sharp pullback. Given the high price and the likelihood of volatility, using options may be a smart way to manage risk in the upcoming weeks. Buying call spreads instead of outright futures contracts allows investors to benefit from potential gains toward the $4,100 mark while clearly defining maximum possible losses. On the other hand, purchasing put options could be a cost-effective hedge against a sudden drop back to the $4,000 support level.

Federal Reserve Policy Meeting

A key event to watch is the Federal Reserve’s policy meeting at the end of October. The markets have nearly fully anticipated a quarter-point rate cut, so attention will be on the Fed’s future guidance. Any indication that they might pause or slow the easing process could lead to significant profit-taking and a drop in gold prices. The trend of central bank buying creates a strong support level for prices, and this pattern is not new. Over the past few years, central banks have built their gold reserves, accumulating a record of 1,136 tonnes in 2022 and continuing to buy strongly since then. This sustained demand suggests that any price dips will likely be seen as buying opportunities by large institutions. Keep an eye on the US Dollar Index, which is unusually strong while gold is also rising. This strength is influenced by safe-haven flows moving away from the Euro and Yen. If political stability is restored in France and Japan, or the US government shutdown ends, this could change the current dynamic and lead to a reversal in one of these assets. In conclusion, technical indicators suggest a short-term peak, despite a generally positive fundamental outlook. Trading strategies should prioritize risk management until the market processes the upcoming Fed meeting minutes and establishes a new balance. Using the $4,000 level as a key pivot point for making entry and exit decisions will be essential. Create your live VT Markets account and start trading now.

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