Gold prices in India increased on Friday, showing a rise to 12,322.78 INR per gram from 12,225.19 INR the previous day. The price per tola also saw an increase, reaching 143,737.90 INR from 142,592.20 INR.

Global economic risks and the prospect of US Federal Reserve rate cuts influenced the continual purchase of gold. Rising US-China trade tensions and a prolonged US government shutdown contributed to concerns, making gold a safe-haven choice.

Geopolitical Impact on Gold

Geopolitical events such as tensions between the US and Russia, along with potential meetings between leaders, add to the complex economic outlook. Statements from Federal Reserve officials point to potential rate cuts, affecting dollar value and further impacting gold prices.

In India, gold prices are based on international rates and adjusted for local currency values. Variations may occur locally, but prices are regularly updated to reflect current market conditions.

Central banks worldwide are significant purchasers of gold, diversifying reserves to strengthen economies. Gold is valued as a hedge against inflation and currency depreciation, often moving inversely to the US Dollar and riskier assets.

The price is also impacted by interest rate trends, with lower rates tending to increase gold’s attractiveness. Market dynamics, such as a strong or weak dollar, can significantly influence gold buying behaviours.

Market Predictions and Strategy

Given the current market environment, we see a strong case for establishing long positions in gold derivatives. The combination of escalating US-China trade tensions, a dovish Federal Reserve, and ongoing geopolitical conflicts creates a powerful tailwind for gold. These factors are increasing demand for safe-haven assets, and gold is the primary beneficiary.

The market has fully priced in two 25-basis-point rate cuts by the Federal Reserve before the year ends, which should continue to weaken the US Dollar. We’ve seen the CME FedWatch Tool consistently showing over a 90% probability for a cut at the upcoming October 29th meeting. This follows the September jobs report, released earlier this month, which showed Non-Farm Payrolls coming in well below consensus estimates, confirming a slowdown in the labor market.

Implied volatility on gold options has surged, with the CBOE Gold ETF Volatility Index (GVZ) hitting a 12-month high last week, reminiscent of the levels we observed during the banking sector stress back in early 2024. Given these elevated premiums, traders might consider using bull call spreads rather than buying outright calls. This strategy helps to cap the upfront cost while maintaining upside exposure to a potential price rally.

The scheduled meeting between President Trump and President Putin in Budapest is a key event risk that could disrupt this bullish outlook. A sudden peace agreement or significant de-escalation in Ukraine would likely trigger a sharp “risk-on” sentiment across markets, causing a pullback in gold prices. We saw a similar, though brief, drop in gold after the initial ceasefire talks in mid-2024, highlighting this sensitivity.

The inverse relationship between gold and the US Dollar remains a critical driver for this trade. The US Dollar Index (DXY) has already broken below the key 102.50 support level this week in anticipation of the Fed’s easing cycle. Looking back at the Fed’s policy pivot in late 2023, the DXY fell over 4% in the following two months, while gold rallied nearly 8%, providing a clear historical precedent for the current setup.

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