Gold prices stabilise below $4,000 following a 1.59% drop, marking its largest one-day decline since mid-August. The retreat comes as geopolitical pressures ease with a US-brokered peace deal between Israel and Hamas, reducing safe haven demand.

Gold stands firm after a sharp decrease the previous day, maintaining around $3,985 as it struggles to surpass the $4,000 threshold. The dip results from profit-taking and diminished geopolitical worries, as the broader upward trend remains backed by economic uncertainty and a dovish Federal Reserve outlook.

Persistent Global Risks and Central Bank Buying

Persistent global risks, like the Russia-Ukraine conflict and US government shutdown concerns, support gold’s appeal. Central bank buying and Gold-backed ETF inflows also buoy its ongoing rally, which is heading for an eighth straight weekly gain.

The US Consumer Sentiment Index in October falls slightly from September; inflation outlook remains steady. Despite a weaker US Dollar, Gold struggles to recover following its recent decline. The US Dollar Index nears two-month highs, reflecting its strongest weekly gain this year.

Gold tries to rebound after testing the $3,950 support zone, facing resistance around the $3,995-$4,000 mark. Sustained gains could lead to new highs, but failure to breach $4,000 might prompt a pullback. The Relative Strength Index indicates a neutral stance, leaving room for varied market movements.

Gold is giving us mixed signals right now, sitting below the key $4,000 level. The recent peace deal news caused a sharp drop, but the bigger picture of a dovish Fed and high government debt still supports higher prices. This tension creates specific opportunities for derivative traders in the coming weeks.

Strategies for Traders and Investors

For those who believe this is just a temporary dip, buying call options is a clear strategy. With implied volatility now lower after the recent news, entry prices are more attractive for betting on a move back above the all-time high. The CME FedWatch tool is pricing in an over 90% chance of a rate cut in November 2025, which would likely fuel another rally.

If we expect gold to stay in a range while the market digests recent events, selling volatility makes sense. An iron condor with short strikes outside the $3,900 to $4,100 range could be effective for the coming weeks. This strategy profits from the price staying put and the passage of time.

However, we can’t ignore the strong US Dollar, which is trading near a DXY level of 99.35, its highest since early August 2025. If the dollar continues its strength or if the government shutdown ends sooner than expected, buying put options below the $3,950 support level offers a way to profit from a deeper correction. This also works as a hedge for anyone holding physical gold or long futures.

Underlying demand remains a powerful force that suggests buying the dips is the dominant long-term play. Central banks have already added over 800 tonnes to reserves year-to-date in 2025, continuing the aggressive purchasing pattern we observed back in 2022 and 2023. After steady outflows for much of 2024, we’ve also seen gold-backed ETF inflows turn positive this quarter, adding another layer of support.

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