Gold prices have risen to $3,970 as traders seek safe assets amidst a global equity market sell-off. This increase follows a decline to $3,930, with the precious metal remaining within its two-week trading range.

Geopolitical and Economic Factors

Stock market declines, especially in major Wall Street indices, have reinforced demand for safe-haven assets, with concerns about an AI bubble and geopolitical tensions. Despite these factors, gold’s recovery is limited by the Federal Reserve’s hawkish stance and discussions among policymakers.

The ongoing US government shutdown, now in its fifth week, complicates market conditions by withholding monetary policy data. Key economic indicators, such as the ADP Employment Change and the ISM Services PMI, are anticipated to show minor improvements, with private payrolls expected to increase by 25,000 in October.

Gold is a trusted store of value and safe-haven asset, popular with central banks aiming to diversify reserves. Central banks, particularly from China, India, and Turkey, added a record 1,136 tonnes of gold in 2022. Gold’s price is inversely related to the US Dollar and risk assets, often rising in times of geopolitical instability and when interest rates are low.

With global equity markets selling off, the demand for gold as a safe haven is clearly on the rise. The Nasdaq Composite has fallen by nearly 8% over the last two weeks, reviving fears of a bursting AI bubble and pushing investors towards tangible assets. This sentiment suggests that any further weakness in stocks will likely fuel more buying in gold futures and call options.

Monetary Policy Constraints

However, we must watch the Federal Reserve, as their hawkish stance is putting a cap on gold’s potential rally. Market-implied odds for a December rate cut have fallen from over 70% last month to below 40% this week, which is keeping the US Dollar and Treasury yields firm. This tug-of-war means gold may remain stuck in a range, making strategies that profit from sideways movement, like selling strangles, potentially attractive.

The ongoing five-week government shutdown adds a significant layer of uncertainty, as it deprives us and the Fed of crucial economic data. We saw a similar situation during the 35-day shutdown in late 2018 and early 2019, a period where gold prices rallied as the Fed was forced to adopt a more cautious tone. If this shutdown continues, it could weaken the Fed’s hawkish resolve and provide a strong tailwind for gold.

Underpinning the price is the relentless purchasing from central banks, which continues to provide a solid floor for the market. The latest World Gold Council data for Q3 2025 showed that central banks added another 280 tonnes to their reserves, signaling strong institutional belief in gold’s long-term value. This suggests that buying on dips remains a viable strategy for those with a longer-term perspective.

Given these conflicting signals, implied volatility in gold options is likely to be elevated in the coming weeks. Traders should prepare for sharp moves once key data, like today’s ADP report, is released, as a market starved for information will likely overreact. This environment is favorable for defined-risk option strategies that can profit from a significant price swing in either direction.

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