Insights 
VT 
Impact Of US-China Trade Developments
The positive US-China trade developments are affecting risk appetite, which may reduce demand for gold as a safe-haven asset. The Fed has recently reduced its benchmark overnight borrowing rate to a range of 3.75%-4.0%. A potential further rate cut is anticipated, with markets anticipating a 63% chance of this happening in December.
Global gold demand impacts the price, with central banks being significant holders. In 2022, central banks added 1,136 tonnes of gold, valued at around $70 billion, to their reserves. Emerging economies like China, India, and Turkey are increasing their gold reserves rapidly.
Gold is inversely correlated with the US Dollar and US Treasuries, two major reserve assets. The price is influenced by a variety of factors, including geopolitical instability and economic conditions. Gold’s price is typically controlled by the US Dollar’s behaviour, as it is priced in dollars.
With gold falling to around $3,965, our immediate bias should be bearish. The combination of easing US-China trade tensions and a Federal Reserve signaling it may pause interest rate cuts removes two major supports for the metal. We see this as an opportunity to position for further downside in the coming weeks.
The market is currently pricing in a 63% chance of a rate cut in December, but we believe this is too high given the Fed’s commentary. We need to watch the upcoming inflation data for October very closely. If core inflation remains sticky above 3.5%, as it has in recent months, the odds for a December cut will likely plummet, strengthening the US dollar and pushing gold lower.
Market Strategies And Predictions
While the tariff reduction on Chinese goods is a negative headline for gold, we should remember the fragile nature of these agreements, recalling the mixed results of the “Phase One” deal back in 2020. This truce could be temporary, meaning any sharp market rally on the news might be short-lived. For now, however, the path of least resistance for gold appears to be downward as safe-haven demand wanes.
For a direct bearish play, we should look at buying put options. With the price breaking below the key $4,000 level, purchasing December puts with a strike price around $3,900 could be an effective strategy. This would profit from a continued slide driven by a hawkish Fed and improved risk appetite.
Alternatively, for a more conservative approach that benefits from sideways or downward movement, we can consider selling call credit spreads. Establishing a spread with strike prices safely above the $4,000 psychological barrier would allow us to collect premium. This strategy profits as long as gold does not stage a significant rally in the coming weeks.
We must also watch today’s US ISM Manufacturing PMI release. A weaker-than-expected number could give gold a temporary bounce by weakening the dollar. We just saw that the October ISM data from 2024 came in at 49.2, so a print below that level might provide a better entry point for us to initiate new short positions.
