Insights 
VT 
Gold (XAU/USD) is experiencing a historic surge, reaching new highs above $4,200. The metal’s growth is attributed to continued global economic and political uncertainty and expectations of a more dovish approach from the Federal Reserve.
Currently, XAU/USD stands around $4,200, marking a daily increase of 1.40% after reaching a peak of $4,218 earlier. This uptrend is influenced by the escalating US-China trade tensions, which have bolstered Gold’s safe-haven status, coupled with the ongoing US government shutdown.
Gold Price Drivers
Supporting Gold’s price further is a softer US Dollar and subdued Treasury yields, maintaining its value near record highs. The persistent geopolitical tensions and institutional demand provide a positive outlook for the precious metal.
The US-China trade conflict impacts market sentiment, with recent developments involving threats and retaliatory measures. The IMF Chief Economist warns that renewed trade war escalation poses a downside risk to the global economy, while the Federal Reserve Chair acknowledges significant risks to employment amid rising inflation.
Markets anticipate potential rate cuts by the Fed, with high probabilities of such actions in the coming months. Technically, XAU/USD remains strong, with immediate support noted around $4,180-$4,160, despite indications of overbought conditions on the Relative Strength Index.
Gold maintains its role as a key investment during uncertain times, functioning as both a safe-haven and an inflation hedge.
With gold now trading near its all-time high of $4,200, traders should consider strategies that benefit from continued upward momentum, such as buying call options or bull call spreads. However, given how far and fast the price has risen, we must also prepare for a potential pullback. The current rally is being fueled by widespread economic uncertainty and escalating geopolitical tensions.
Institutional Demand
Central banks have continued their historic gold-buying spree, with recent World Gold Council data showing that purchases in 2024 and 2025 are on pace to match the record levels we saw back in 2022. This powerful institutional demand provides a strong floor for the price, especially as the latest CPI figures show inflation remains stubbornly above the Fed’s target. This makes gold a crucial hedge against both currency devaluation and persistent price increases.
We are seeing markets price in a near-certainty of a Federal Reserve rate cut, with fed funds futures indicating a 97% probability of a 25-basis-point cut this month. This is largely a response to the latest jobs report, which showed the unemployment rate ticking up to 4.2% and a clear softening in the labor market. The expectation of lower interest rates makes holding non-yielding gold a much more attractive proposition.
This current market environment is very similar to what we experienced during the 2019-2020 period when the US-China trade conflict and a dovish Fed first pushed gold to then-record highs. During that time, we saw a similar pattern of a strong rally followed by brief periods of consolidation before the next leg higher. That historical precedent from over five years ago suggests that any significant dips should be viewed as buying opportunities.
While the trend is clearly bullish, the Relative Strength Index (RSI) is showing overbought conditions, which suggests some caution is warranted in the immediate short term. Derivative traders could consider buying call options with strikes near the $4,160 or $4,100 support levels to capitalize on any temporary dips. Selling cash-secured puts below these key levels could also be a viable strategy to collect premium or enter a long position at a more favorable price.
