Gold recently surpassed the $4,000 mark, trading at about $4,056. This surge comes amidst global economic and political uncertainty and a dovish outlook from the Federal Reserve. Despite a stronger US Dollar, factors such as political turmoil in France and Japan and a US government shutdown have driven demand for Gold as a safe haven.

Geopolitical risks, including the Russia-Ukraine conflict and Middle Eastern tensions, have enhanced Bullion’s appeal. Central banks aim to purchase 1,000 metric tons of Gold by 2025, diversifying reserves from US Dollar-denominated assets. The ongoing US government shutdown further complicates the Federal Reserve’s policy outlook.

The Us Dollar Index

The US Dollar Index has risen, driven by political events in Europe and Japan. US Treasury yields are also affected, with predictions of interest rate cuts by December 2026. Analysts expect the Fed to lower rates at the upcoming meeting.

Gold’s RSI points to a potential pullback, with immediate support at the $4,000 level. Resistance is anticipated at $4,050 and $4,100. Gold is popular during turbulent times as a store of value and hedge against inflation, with central banks being significant buyers. Gold’s price depends on various factors, including interest rates and US Dollar movements.

With gold now above $4,000, we see signs of the market being overextended, something not seen since the 1980s rally. The monthly Relative Strength Index (RSI) is above 90, suggesting this upward momentum is historically stretched. While the fundamental reasons for buying are strong, opening aggressive new long positions here carries significant risk of a sharp pullback.

Given the high price and expected volatility, using options may be a prudent way to manage risk in the coming weeks. Buying call spreads, rather than outright futures contracts, allows for participation in further gains toward the $4,100 level while clearly defining the maximum potential loss. Conversely, purchasing put options could be a cost-effective hedge against a sudden drop back toward the $4,000 support level.

Federal Reserve Policy Meeting

The main event to watch is the Federal Reserve’s policy meeting at the end of October. Markets have almost fully priced in a quarter-point rate cut, so the focus will be on the Fed’s forward guidance. Any hint that they may pause or slow the pace of easing could trigger significant profit-taking and a correction in gold prices.

The trend of central bank buying provides a strong floor for prices, and this is not a new phenomenon. We saw this behavior build over the last few years, with central banks accumulating a record 1,136 tonnes of gold back in 2022 and continuing to be major buyers ever since. This ongoing demand suggests any price dips will likely be viewed as buying opportunities by large institutions.

Keep a close watch on the US Dollar Index, which is unusually strong at the same time as gold. This is driven by safe-haven flows moving out of the Euro and Yen. If the political issues in France and Japan stabilize, or the US government shutdown ends, this dynamic could shift and cause one of these assets to reverse course.

Ultimately, the technical indicators are flashing warning signs of a short-term peak, even as the fundamental picture remains bullish. Trading strategies should focus on risk management until the market digests the upcoming Fed meeting minutes and finds a new equilibrium. Using the $4,000 level as a key pivot point for entry and exit decisions will be critical.

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