Insights 
VT 
Gold prices approach $4,000 as demand for safe assets rises amid US-China trade tensions. The potential for new tariffs and China’s potential rare-earth export curbs contributes to this surge, along with a prolonged US government shutdown.
Gold trades at $3,997, reflecting a 0.60% increase due to these tensions, ongoing shutdown, and anticipated Federal Reserve measures. President Trump’s warnings of new tariffs and absence from a scheduled meeting with China’s President add to the uncertainty.
Gold Price Fluctuation
Recent gold price fluctuation showed a decrease of 1.59% due to profit-taking and geopolitical developments in the Middle East. Despite the shutdown lasting ten days, the University of Michigan reports consumer sentiment remains steady.
Political issues in France and Japan also enhance gold’s attractiveness as a safe asset. The potential resignation of French President Macron and political uncertainties in Japan contribute to this dynamic.
The US Dollar’s performance impacts gold pricing, with a 0.43% fall in the US Dollar Index. Inflation concerns and Fed policy dynamics are central, with interest rate changes anticipated in late October.
Goldman Sachs predicts an increase in gold prices to $4,900 by 2026 due to strong ETF flows and central bank purchases. Gold’s inverse relationship with the US Dollar and Treasuries remains, as economic and geopolitical factors continue to influence its value.
Gold Market Dynamics
Given gold’s position near the critical $4,000 mark, we see the market being driven by a perfect storm of geopolitical risk and monetary policy speculation. The ongoing US government shutdown and escalating trade tensions with China are fueling this safe-haven demand. With the Federal Reserve widely expected to cut rates on October 29, the path of least resistance appears to be upward for now.
For traders anticipating a breakout, the upcoming US CPI report on October 24 could be the next catalyst to push gold past its all-time high of $4,059. Recent data from the World Gold Council confirms that central banks have continued their aggressive purchasing, adding a net 228 tonnes in the first quarter of 2024, which underpins this rally. Buying call options or bull call spreads for November expiry allows for participation in further upside while defining risk.
However, we must be cautious as the Relative Strength Index (RSI) is in overbought territory, signaling a potential for a sharp pullback. We remember the significant correction in August 2020 after gold first cleared $2,000, showing that profit-taking can be aggressive at historical peaks. Hedging long positions with put options struck below the $3,895 support level could be a prudent strategy.
The high level of uncertainty has pushed gold’s implied volatility up, with the CBOE Gold Volatility Index (GVZ) now trading near 24, a significant jump from its average earlier in the year. This makes selling premium an attractive strategy for some, such as writing covered calls against existing long futures positions to generate income. This is especially relevant for those who believe gold may consolidate before its next major move.
This short-term price action is supported by a powerful long-term trend of de-dollarization and reserve diversification by global central banks. We saw them add a historic 1,136 tonnes in 2022 and follow that with another strong 1,037 tonnes in 2023. This sustained institutional demand suggests that any significant dips are likely to be viewed as buying opportunities, supporting longer-dated bullish positions.
