Trade Concerns and Tariffs
President Trump’s executive order imposing tariffs on imports from nearly 70 countries renewed trade concerns, impacting the US Dollar. The order sets tariffs of 10% to 41%, with potential further increases for major trading partners like China if negotiations fail.
Treasury yields declined following the NFP report, with the 10-year yield at approximately 4.24%. This reduction lowered the opportunity cost of holding Gold. Gold remains a popular safe-haven asset, particularly amid geopolitical uncertainty and economic volatility, with central banks from emerging economies like China and India continuing to strengthen their Gold reserves.
Given the weak jobs report and the subsequent surge in gold, we see a clear path forward for bullish derivative plays on precious metals. The market is now pricing in a high probability of a Fed rate cut in September, which historically weakens the dollar and boosts gold. We should position for continued upside in gold over the next several weeks.
To support this view, recent data shows the Dollar Index (DXY) has just broken below the key psychological level of 95.00 for the first time in over a year. Furthermore, the latest Consumer Price Index (CPI) report from mid-July 2025 came in slightly cooler than expected, giving the Fed more justification to ease monetary policy. These factors create a strong tailwind for non-yielding assets like gold.
Gold Derivative Strategy
We believe buying call options on gold futures or gold-backed ETFs is the most direct way to capitalize on this trend. Considering the potential for a sharp move following the September Fed meeting, we are looking at call options with strike prices of $3,400 and $3,500 for October and November 2025 expirations. This strategy allows us to profit from a continued rally with defined risk.
This situation feels reminiscent of the 2019-2020 period when the Federal Reserve began cutting rates amidst trade war uncertainty. Looking back, we saw gold rally over 30% in that environment. The current combination of a slowing US economy and renewed global trade tensions provides a similar, powerful setup for gold prices.
The decline in Treasury yields further solidifies our bullish stance, as the 10-year yield dropping to 4.24% significantly lowers the opportunity cost of holding gold. With yields falling, large institutional funds are more likely to rotate into gold as a store of value. We expect this trend in yields to continue as rate-cut expectations become more entrenched.
Volatility in the gold market has increased, making options more expensive. Therefore, we should also consider bull call spreads to lower the upfront cost of our positions. This involves buying a call option at a lower strike price and simultaneously selling another call at a higher strike price, capping our potential gains but reducing our initial premium outlay.
Finally, the strong institutional demand provides a floor for the market. Data released by the World Gold Council for the second quarter of 2025 showed that central banks, led by China and Turkey, added a net 270 metric tons to their reserves. This consistent buying signals that major global players are also positioning for long-term dollar weakness and geopolitical instability.
