Gold price (XAU/USD) reached a new record near $4,130 during early trading on Tuesday in Asia. This increase is attributed to renewed US-China trade tensions, leading to rising demand for safe-haven assets. US President Trump announced new trade measures, including 100% tariffs on Chinese goods and export controls on critical software, effective by 1 November.

Despite this, Trump stated that the US is not aiming to harm China, indicating a possibility for future dialogue. The expectation of further rate cuts by the US Federal Reserve also supports Gold prices. The market anticipates a 25 basis points rate cut in October, with another expected in December, affecting the appeal of non-yielding assets like Gold.

Gold as a Safe Haven

Gold’s price has surged over 56% so far this year, though some experts suggest a near-term correction may be beneficial. Gold has historically served as a safe-haven and a hedge against inflation.

Central banks, especially in emerging economies like China and India, have been significant buyers of Gold to strengthen their currencies. Gold prices are inversely correlated with the US Dollar and US Treasuries, rising when these assets fall. Gold’s value also increases with lower interest rates and geopolitical tensions.

With gold hitting a fresh record, we must consider the high chance of a short-term pullback given the 56% rally we’ve seen so far this year. The conflicting signals between new tariff threats and softer weekend comments from the White House are creating significant uncertainty. This environment suggests that while the trend is up, now is the time to manage risk, not chase the peak with unprotected positions.

Market Strategies and Risks

The high level of uncertainty leading up to the November 1st tariff deadline means implied volatility on gold options is likely to be elevated. This makes buying options expensive, but it presents an opportunity for strategies like call spreads to bet on further upside while defining risk. We saw a similar pattern in the 2018-2019 trade disputes where implied volatility in gold options surged ahead of major announcements, rewarding those who were prepared for sharp price swings.

Given that a correction is possible, hedging any existing long positions is critical over the coming weeks. We remember the sharp pullback in gold in late 2020 after a similar parabolic run, reminding us that no trend is permanent. Purchasing put options or selling out-of-the-money covered calls on gold futures or ETFs can provide a buffer against a sudden reversal.

The market has almost fully priced in a Federal Reserve rate cut for the October meeting, which has fueled this rally. However, this creates a significant risk if Chairman Powell’s speech later today sounds even slightly less dovish than expected, which could strengthen the US Dollar and trigger a gold sell-off. We must not forget the underlying support from central banks, which collectively added another 1,037 tonnes in 2023, showing strong institutional demand below the surface.

Ultimately, the November 1st deadline for new trade measures is the key catalyst on the immediate horizon. The president’s history from his first term showed us that sentiment can turn on a single statement, so his softened stance could be temporary. Derivative plays that expire in early November could be an effective way to trade the outcome of this specific geopolitical event.

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