Gold prices near $4,000 as the demand for safe assets rises due to ongoing US-China trade tensions. The possibility of new tariffs and China’s potential restrictions on rare-earth exports contribute to this increase, along with a prolonged US government shutdown. Gold is currently priced at $3,997, which shows a 0.60% rise attributed to these tensions, the government shutdown, and expected measures from the Federal Reserve. President Trump’s warnings about new tariffs and his absence from a scheduled meeting with China’s President add to the uncertainty.

Gold Price Changes

Recently, gold prices dropped by 1.59% due to profit-taking and geopolitical issues in the Middle East. Despite the shutdown lasting ten days, the University of Michigan reports that consumer sentiment remains stable. Political challenges in France and Japan also enhance gold’s pull as a safe asset. The potential resignation of French President Macron, along with uncertainties in Japanese politics, contribute to this situation. The performance of the US Dollar affects gold prices, which recently fell by 0.43% on the US Dollar Index. Concerns about inflation and the Fed’s policy are significant, with interest rate changes expected later in October. Goldman Sachs predicts gold prices will rise to $4,900 by 2026, driven by strong flows into ETFs and central bank purchases. Gold continues to move inversely to the US Dollar and Treasuries, as economic and geopolitical factors affect its value.

Gold Market Overview

With gold close to the pivotal $4,000 level, the market is reacting to a combination of geopolitical risks and speculation about monetary policy. The ongoing US government shutdown and escalating trade tensions with China increase demand for safe assets. With the Federal Reserve expected to cut rates on October 29, gold prices may continue to rise for now. For traders looking for a breakout, the upcoming US CPI report on October 24 could be key to pushing gold past its all-time high of $4,059. Recent data from the World Gold Council shows that central banks have aggressively purchased gold, adding a net 228 tonnes in the first quarter of 2024, supporting this upward trend. Buying call options or bull call spreads expiring in November can help capitalize on further gains while managing risk. However, caution is necessary as the Relative Strength Index (RSI) is in overbought territory, indicating a possible sharp decline. We recall the notable correction in August 2020 when gold first surpassed $2,000, highlighting that profit-taking can be swift at historical highs. Hedging long positions with put options below the $3,895 support level might be wise. The current high uncertainty has raised gold’s implied volatility, with the CBOE Gold Volatility Index (GVZ) now near 24, a significant increase from earlier in the year. This makes strategies like selling premium attractive for some traders, such as writing covered calls against existing long futures positions to generate income. This approach is especially relevant for those expecting gold to consolidate before its next major move. This short-term price behavior is backed by a strong long-term trend of de-dollarization and reserve diversification by central banks worldwide. In 2022, they added a record 1,136 tonnes, followed by another solid purchase of 1,037 tonnes in 2023. This ongoing institutional demand suggests that significant price dips will likely be seen as buying opportunities, supporting bullish positions for the long term. Create your live VT Markets account and start trading now.

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