Insights 
VT 
Gold price (XAU/USD) surged to near $4,050.00 during the European trading session on Wednesday. This increase is due to rising demand for safe-haven assets, driven by political instabilities in France and a government shutdown in the United States.
The situation in France arose after Prime Minister Sebastien Lecornu’s unexpected resignation and the reshuffling of his cabinet. Meanwhile, in the United States, President Donald Trump threatened to cut spending as the government shutdown enters its second week. The Euro experienced weakness due to the French crisis, boosting demand for the US Dollar, which hit its highest level in two months.
Rising Interest Rate Cuts
Expectations of interest rate cuts by the Federal Reserve also supported the gold rally. The CME FedWatch tool indicates an 82% probability of two 25 basis point rate cuts this year. Investors are watching FOMC minutes for more monetary policy insights.
With a bullish trend, gold has sustained an upward trajectory, supported by technical indicators like the 20-day EMA and the 14-day RSI. The precious metal is seen as a safe-haven asset and inflation hedge. Central banks have increased gold reserves, adding 1,136 tonnes in 2022. Gold often rises when the US Dollar weakens, showing an inverse correlation with both the currency and risk assets.
With gold breaking $4,000, we see the current market fear, driven by the French political crisis and the US government shutdown, as a powerful tailwind. This political instability is fueling a classic flight to safety, making bullish positions on gold attractive. The strong upward momentum suggests this trend has room to run in the immediate future.
For traders looking to capitalize on this, buying call options with strike prices approaching the $4,100 level offers a defined-risk way to participate in further gains. The high bullish momentum, confirmed by the RSI staying above 60, supports strategies that bet on a continued rise. We view the upcoming FOMC minutes as a potential catalyst that could accelerate this move.
Potential Risks from US Dollar Strength
However, the strong US dollar, now near a two-month high of 99.00, presents a headwind that shouldn’t be ignored. To manage this risk, we are considering bull call spreads, which lower the cost of entry by selling a higher strike call against a purchased one. This strategy profits from a continued, steady rise while reducing the initial cash outlay in a high-volatility environment.
Data from the latest Commitment of Traders (COT) report showed that large speculators increased their net-long positions in gold futures for the sixth consecutive week. This signals that institutional money continues to bet on higher prices, adding a layer of confidence to our bullish outlook. We see this as a sign that the underlying trend is well-supported by major market participants.
The expectation for two more Federal Reserve rate cuts this year remains the primary driver, with an 82% probability priced in. This outlook is reinforced by the latest US Consumer Price Index (CPI) report for September, which showed a stubborn 3.9% year-over-year inflation rate. This persistent inflation makes gold, a non-yielding asset, more attractive compared to bonds.
We also note that central bank buying has continued its aggressive pace since the record-setting year of 2022. Just last month, the People’s Bank of China reported adding another 1 million ounces to its reserves, bringing its total purchases in 2025 to over 8 million ounces. This underlying institutional demand provides a solid long-term floor for the gold price.
Given the elevated prices, selling cash-secured puts with strike prices near the key support level of $3,900 is another viable strategy. This approach allows us to collect premium from the high implied volatility. If the price pulls back, we would acquire a long position at a more favorable level.
We have seen similar parabolic moves before, such as during the market turmoil in 2020 when gold first cleared $2,000. In that instance, sharp but temporary pullbacks offered excellent entry points. Therefore, any dip towards the rising 20-day EMA, currently around $3,800, should be viewed as a buying opportunity rather than a reversal of the trend.
