Gold remains above $4,000, trading at approximately $4,021, despite a slight decrease of 0.50% on Thursday. The metal achieved a record high of $4,059, supported by safe-haven demand amid growing political and geopolitical uncertainty.

The US government shutdown, ongoing for nine days, raises market concerns, affecting federal operations and economic data releases. The situation complicates the Federal Reserve’s policy outlook, with rate cuts anticipated in October and December.

Federal Reserve’s Monetary Policy

The CME FedWatch tool indicates a nearly 100% probability of rate cuts, influencing US Treasury yields and the US Dollar, both assisting Gold’s price stability. On the geopolitical scene, tensions persist, though the US-brokered ceasefire between Israel and Hamas provides short-term relief, with global sentiment affected by the Ukraine conflict and US-China tensions.

Gold serves as a store of value, a hedge against inflation, and a preferred asset during instability. Central banks purchase large amounts of Gold to strengthen their economies, acquiring 1,136 tonnes in 2022, the highest recorded. Gold’s price is inversely related to the US Dollar and Treasuries, rising in depreciating Dollar scenarios and economic uncertainty.

With gold holding strong above $4,000, we see the current environment as supportive for continued bullish positions. The ongoing US government shutdown is delaying key economic reports, which forces the Federal Reserve to act based on limited information. This uncertainty, combined with a near-certainty of an October rate cut, should keep downward pressure on the dollar and support gold.

Given the market is pricing in a 100% probability of a Fed rate cut this month, we should consider long positions through call options or futures contracts expiring in late 2025. This allows us to capitalize on the expected follow-through buying after the Fed officially begins its easing cycle. We saw a similar setup during the 2019 rate-cutting cycle, which preceded a multi-year rally for the precious metal.

Geopolitical Factors Supporting Gold

The elevated geopolitical risk, from the fragile ceasefire in the Middle East to the unresolved conflict in Ukraine, provides a solid floor for gold prices. Volatility is high, with the Cboe Gold ETF Volatility Index (GVZ) hovering around 21, well above its long-term average. This makes strategies like bull call spreads attractive, as they can reduce the high cost of buying calls outright while still offering upside potential.

We must also consider the historical precedent of government shutdowns, like the 35-day shutdown in 2018-2019, which caused significant market tremors. If the current deadlock extends, we expect another surge in safe-haven demand for gold. This justifies using gold positions not just for speculation but as a direct hedge against potential weakness in equity markets.

The trend of central bank buying further strengthens our conviction for a higher gold price floor. Following the record purchases seen in 2022 and 2023, central banks have continued to be net buyers, accumulating over 200 tonnes in the first quarter of this year alone. This sustained institutional demand, particularly from emerging markets, signals a strategic global shift away from the US dollar.

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