Insights 
VT 
Gold continues to reach new heights, climbing to $4,078 in the Asian session amid economic uncertainties. Concerns over a prolonged US government shutdown and US-China trade tensions contribute to increased demand for the safe-haven metal.
The expectation of the US Federal Reserve lowering borrowing costs twice more this year weakens the US Dollar, benefiting gold. However, thin liquidity due to a US bank holiday may limit gains despite ongoing tension around trade tariffs and geopolitical risks.
US-China Trade Tensions Rise
President Trump’s threats of a 100% tariff on Chinese exports and new software export controls, effective November 1, affected global risk sentiment. While Trump softened his tone over the weekend, uncertainty remains, pushing gold prices to new peaks as discussions with China’s Xi Jinping loom.
The US government shutdown continues, with no resolution in Congress, and federal employees receiving layoff notices. Potential military action involving Tomahawk missiles in the Russia-Ukraine conflict keeps geopolitical factors driving gold demand.
According to the CME FedWatch tool, the likelihood of interest rate cuts in October and December is high, at 96% and 87%. This supports the appreciation of gold amidst the absence of US Dollar buying interest, with technical indicators suggesting potential overbought conditions needing consolidation.
With gold breaking new records above $4,070, the primary drivers remain geopolitical risk and the strong expectation of a more dovish Federal Reserve. The ongoing US government shutdown and new trade tensions with China are creating an environment where safe-haven demand is unlikely to disappear. We feel that shorting gold in this climate is a high-risk move.
Interest Rate Cuts and Inflation Data
The market has almost fully priced in two more interest rate cuts by the end of 2025, which is a significant reversal from the rate-hiking cycle we saw conclude back in 2023. This sentiment is fueled by recent economic data, as the last Consumer Price Index (CPI) report for September 2025 showed core inflation slowing to 2.9%, giving the Fed more room to ease policy. This sustained pressure on the US Dollar provides a direct tailwind for gold prices.
The renewed trade friction with China adds another layer of uncertainty, especially since the US trade deficit with China continues to be a sticking point, hovering around $30 billion per month through the summer of 2025. We have also seen central banks continue their gold buying spree that was a major theme throughout 2024, providing a solid floor under the market. This consistent physical demand suggests any significant price dips will likely be met with strong buying interest.
For derivative traders, this is an ideal time to use options to manage risk while maintaining a bullish outlook. Buying call options on gold futures or a related ETF offers a way to participate in further upside while defining your maximum loss to the premium paid. Given the overbought technical signals, this is a more prudent approach than an outright long futures position.
Given that market uncertainty has pushed implied volatility higher, selling out-of-the-money put options could also be an effective strategy for generating income. By selling puts below key support levels like the $3,950 area, we can collect premium while expressing the view that the uptrend will remain intact. This allows us to profit even if gold moves sideways or slightly down, as long as it stays above our chosen strike price.
