Insights 
VT 
Gold’s Surge Amid US-China Tensions
Gold has surpassed $4,100 as US-China tensions intensify, boosting its appeal as a safe-haven asset. XAU/USD rose nearly 2%, currently trading at $4,095, with the prospect of further escalation driving demand.
Geopolitical concerns and central bank purchases contribute to Gold price movements. President Trump recently threatened 100% tariffs on Chinese imports but later softened his stance. A meeting with President Xi Jinping remains anticipated.
Economic data is overshadowed by the government shutdown and Federal Reserve activities. The US Dollar Index is up 0.35% at 98.24, while the 10-year Treasury note yield has declined to 4.059%.
Analysts foresee Gold reaching $5,000 by 2026, with expectations of rising prices driven by ETF flows and central bank demand. The Fed may cut interest rates by October 29, with a 97% probability. Gold’s outlook remains positive, with RSI indicating strong buying pressure.
Central banks are major Gold holders, adding 1,136 tonnes worth around $70 billion in 2022. Gold maintains an inverse relation to the US Dollar and Treasury yields, increasing as these assets depreciate. In times of geopolitical instability, Gold’s status as a safe-haven asset remains reaffirmed.
Options Strategies for Gold Trading
With gold breaking above $4,100, we should consider buying call options to capture further upside while defining our maximum risk. The intense geopolitical friction and the ongoing government shutdown are creating a powerful tailwind for safe-haven assets. Given the strong momentum, options strategies that profit from rising prices, such as bull call spreads, can also be effective to lower the entry cost.
Implied volatility is likely very high right now, making options expensive for buyers. We should therefore look at selling out-of-the-money put options or implementing put credit spreads to collect premium, betting that gold will stay above key support levels like $4,000. This strategy takes advantage of the market’s heightened fear, which inflates option prices.
The trend of central bank buying provides a strong fundamental floor for the gold price. We saw them add a record 1,136 tonnes in 2022, and reports from the World Gold Council confirmed this aggressive accumulation continued through 2023 and 2024. This consistent demand suggests that any significant price dips are likely to be viewed as buying opportunities by major global institutions.
The market is pricing in a 97% probability of a Federal Reserve rate cut on October 29, which is a significant catalyst for gold. We can look back to the Fed’s policy pivot in 2019, when a shift toward lower rates preceded a major gold rally that lasted for months. This historical parallel suggests that holding long gold positions through the upcoming FOMC meeting could be a profitable strategy.
Current US-China trade tensions are reminiscent of the 2018-2019 period, where escalating tariffs caused gold to rally over 20%. Any breakdown in the expected meeting between Trump and Xi Jinping later this month could trigger a similar surge. Therefore, maintaining long exposure via futures contracts or long-dated call options seems prudent.
Despite the bullish outlook, the Relative Strength Index (RSI) is in overbought territory, signaling the risk of a short-term pullback. To protect long futures positions, we should consider buying protective puts with a strike price below the $4,000 psychological level. This acts as insurance against a sudden positive resolution in trade talks or an unexpected end to the government shutdown.
Global Economic Dynamics and Gold Rally
It is unusual for both gold and the US Dollar Index to rally together, which indicates an extreme flight to safety. We saw similar dynamics during the peak of the 2008 financial crisis. Traders must watch the US 10-year yield closely, as its continued fall below 4% reflects deep-seated economic fear that will continue to fuel the gold rally.
