Insights 
VT 
Gold continues to reach record highs as the European session progresses, supported by speculation that the US Federal Reserve will reduce borrowing costs twice more this year. Concerns over a prolonged US government shutdown and ongoing trade and geopolitical tensions further bolster the demand for gold as a safe-haven asset.
Sanae Takaichi’s victory in Japan’s Liberal Democratic Party leadership contest may delay interest rate hikes by the Bank of Japan, affecting the Japanese Yen and strengthening the US Dollar. This increase in USD, however, does not hinder gold’s upward trend, with market sentiment generally positive despite overbought conditions in the daily Relative Strength Index.
Interest Rate Speculations Fuel Gold Prices
The likelihood of interest rate cuts by the US Federal Reserve stands at 95% for October and 83% for December. This probability drives the consistent rise in gold prices since September. The possibility of mass federal layoffs due to unresolved government shutdown talks adds uncertainty, pushing demand for gold as a protective measure.
Technical analysis suggests that gold’s movement above $3,900 could trigger further bullish activity. Although caution is advised due to overbought signals, any significant pullback is expected as a buying opportunity with strong support around the $3,865 to $3,863 range.
Gold’s climb past $3,900 an ounce is largely fueled by expectations of Federal Reserve interest rate cuts. Looking at the CME FedWatch Tool today, we see the market is pricing in a 92% probability of a 25 basis point cut in November, with another likely to follow in December. This backdrop continues to make non-yielding gold an attractive asset for traders.
Underpinning this rally is persistent demand from central banks, a trend we’ve seen accelerate since the record-breaking purchases of 2022. Recent data from the World Gold Council shows that central banks, particularly those in emerging economies like China and India, added another 250 tonnes to their reserves in the second quarter of 2025 alone. This institutional buying provides a strong floor for the price.
Economic and Geopolitical Factors Support Gold Prices
We should also remember the economic uncertainty created by the prolonged US government shutdown earlier this year. The resulting disruption and delayed economic data are still being factored into growth forecasts, which benefits gold’s safe-haven status. This history of political deadlock adds to the metal’s appeal during times of instability.
Internationally, the Bank of Japan’s continued dovish stance, as was anticipated following Sanae Takaichi’s LDP leadership win last year, is keeping the Yen weak. This has strengthened the US Dollar, which would normally be a headwind for gold. However, the fundamental drivers for gold are so strong that it is rallying despite a firm dollar.
Geopolitical risks also remain a significant factor supporting the price. Ongoing tensions in Ukraine following recent escalations and the fragile peace plan in Gaza keep traders on edge. These unresolved conflicts reinforce gold’s role as a primary safe-haven asset in turbulent times.
For derivative traders, the current environment suggests that buying call options to capture further upside is a viable strategy, especially on any dips towards the $3,900 level. However, we must be cautious as the Relative Strength Index (RSI) remains in overbought territory above 70. This signals that a sharp, corrective pullback could occur without much warning.
Therefore, traders might consider using bull call spreads to limit the upfront cost of long positions while still profiting from a continued rise. Alternatively, buying protective put options could be a prudent way to hedge existing long positions against a potential short-term downturn. Given the current price action, implied volatility is elevated, making options strategies a key tool for managing risk in the coming weeks.
