Gold prices rose to nearly $4,040 during the early Asian session on Monday. The increasing trade tensions between the US and China are driving up the value of gold. Traders are also watching for the US government’s reopening and important data that may affect Federal Reserve policy.

Trade Tensions and the Federal Reserve

Trade tensions increased when President Trump announced new 100% tariffs on Chinese imports starting November 1. China’s warning of possible retaliation adds to the economic uncertainty, which impacts the dollar and boosts the appeal of safe-haven assets like gold. Experts expect the Federal Reserve to lower interest rates by 25 basis points in both October and December, with a 97% probability for the October cut based on the CME FedWatch tool. This expectation makes gold more attractive due to lower opportunity costs. Key economic reports from the US, like Retail Sales and the Producer Price Index, will come out on Thursday. These reports may impact the US dollar and gold prices based on inflation data. Central banks, especially in emerging markets, are still holding large quantities of gold. In 2022, they added 1,136 tonnes worth $70 billion to their reserves. Gold prices are affected by geopolitical issues, interest rates, and the strength of the US dollar. A weaker dollar usually raises gold prices, while higher interest rates can lower demand. Gold often moves inversely to the US dollar and Treasuries, impacting its status as a safe-haven asset. With gold trading around $4,040, momentum continues due to escalating US-China trade tensions over technology export controls. Recent data shows the US trade deficit with China grew by 6% in the third quarter of 2025, highlighting the geopolitical tensions that support safe-haven investments. The Federal Reserve’s expected policy decisions add further pressure, with the CME FedWatch tool suggesting an 85% chance of a 25-basis-point cut at the November 2025 meeting. Weaker monetary policy typically weakens the dollar and boosts non-yielding assets like gold.

Strategies for Traders

For traders in derivatives, this situation suggests a favorable outlook for gold in the coming weeks. Long call options or bull call spreads could be good strategies to benefit from potential price increases while managing risk. Implied volatility in gold options has risen to 22, indicating a likely significant price movement. Reflecting on past trade disputes from the late 2010s, we can see that such tensions often caused spikes in gold prices, as investors sought safer assets. Historically, these geopolitical conflicts tend to have lasting effects, maintaining a steady demand for gold. The current landscape appears familiar and fits a clear historical trend. This rally is supported by the continuous buying from global central banks, which creates strong price stability. Reports from the World Gold Council highlight that central banks added another 800 tonnes of gold by the third quarter of 2025, continuing the trend that began in 2022. This ongoing demand reduces the chances for significant price drops. This week, focus will be on the US Producer Price Index (PPI) data set to be released on Thursday. Any signs of cooling inflation may strengthen the market’s expectation for a Fed rate cut, potentially serving as the next catalyst to push gold prices higher. A soft PPI reading could weaken the US dollar and boost gold prices directly. Create your live VT Markets account and start trading now.

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