Gold (XAU/USD) is seeing a surge in demand due to growing trade tensions between the European Union (EU) and the United States (US). With President Trump’s looming threat of a 30% tariff, gold prices are heading towards $3,400 as hopes for a trade deal fade. Negotiations between the EU and the US have made little headway, and the August 1 tariff deadline is approaching quickly. Commerce Secretary Howard Lutnick expressed some hope for a deal but confirmed there will be no extensions, meaning new tariffs are on the way.

Countermeasures and Their Impact

The EU has set up countermeasures that could impact up to €72 billion of US exports if an agreement isn’t reached. The risk of higher tariffs affects the demand for the US Dollar, making gold more attractive as it becomes relatively cheaper. Technical analysis shows that gold is breaking out above a symmetrical triangle, testing resistance at $3,400. Recent market activity indicates strong bullish momentum, as traders watch closely for trade updates that could influence future prices. The US Dollar is the most traded currency globally, making up about 88% of all foreign exchange transactions. The value of the dollar is heavily influenced by decisions made by the Federal Reserve, particularly related to interest rates and quantitative easing or tightening.

Strategies for Traders

We recommend that derivative traders prepare for a significant jump in prices in the coming weeks. Long call options on gold futures or related ETFs provide a direct way to take advantage of the expected rise. The CBOE Gold Volatility Index (GVZ) has already increased over 5% this past month, indicating the market is anticipating substantial price fluctuations ahead. The former president’s aggressive stance and Mr. Lutnick’s firm deadline serve as catalysts for this volatility. The US goods trade deficit with the EU, which surpassed $200 billion last year, adds weight to the potential European countermeasures. This scenario makes gold an appealing safe-haven asset. We expect the US Dollar to weaken, which would further drive the rally, as geopolitical tensions make holding the currency less attractive. Derivatives markets, including the CME FedWatch Tool, currently suggest an over 80% chance of a Federal Reserve interest rate cut by September. This would exert further downward pressure on the dollar, typically boosting gold prices. Historically, significant changes in US dollar policy and geopolitical strain have led to major gold bull markets. After the US stopped direct convertibility of the dollar to gold in 1971, gold prices soared from $35 to over $800 per ounce in just ten years. We see similar conditions today that could lead to a dramatic price increase. With rising implied volatility, outright purchasing of call options is becoming pricier. We suggest traders consider using bull call spreads to manage high premium costs. This strategy allows participation in the upward movement toward the breakout target while defining risk and lowering the initial capital needed. Create your live VT Markets account and start trading now.

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