Insights 
VT 
Gold Nears New Highs
The New Zealand GDT Price Index dropped to -1.6% from a prior mark of -0.8%. This marks a decrease, possibly impacting associated markets.
The Reserve Bank of New Zealand is anticipated to make a second 25 basis points interest rate cut in October. This aligns with ongoing global financial shifts and concerns.
Gold is nearing $4,000 per troy ounce, driven by fears over potential shutdowns and interest rate adjustments. Political causes in various regions also play a role in this movement.
Bitcoin is stable around $124,000, following an earlier peak at $126,199. Ethereum shows upward momentum, eyeing record levels amid institutional interest.
Japan’s leadership change, under Sanae Takaichi, continues a mix of fiscal support and easy monetary policy. Her victory has removed some uncertainty in the markets.
In currency markets, EUR/USD is under pressure due to French political issues and a strong US Dollar. Similarly, GBP/USD saw recovery, but remains cautious due to the prevailing risk-off scenario.
Strategic Market Positioning
Given the current risk-off mood driven by US shutdown fears and French political turmoil, we see continued strength in the US dollar. Historically, periods of acute political uncertainty, like the US budget standoffs we saw in the previous decade, often lead to a flight to safety. Derivative traders should view this dollar strength as the market’s primary theme for the coming weeks.
Gold is approaching the $4,000 mark as a direct result of this uncertainty and expectations of interest rate cuts. We believe buying call options on gold futures is a compelling way to gain exposure to further upside, mirroring the rally we saw back in 2020 when global instability drove the precious metal to its previous records. This strategy offers a defined-risk approach to capitalizing on the ongoing fear in the market.
The Euro is particularly vulnerable, slumping towards the 1.1650 support level due to French political instability. We have seen this before, such as during the 2024 French snap election fears, where political risk premium was priced into the currency, weakening it significantly. Consequently, we see value in purchasing put options on the EUR/USD to position for a potential break below this key level.
In New Zealand, the story is consistently bearish with the GDT price index falling further to -1.6% and the RBNZ poised for another rate cut. This fundamental weakness suggests exploring strategies that short the Kiwi dollar, particularly against the strong US dollar. Looking back at the RBNZ’s 2019 easing cycle, the NZD/USD pair fell over 8% in just a few months, a historical precedent we should not ignore.
With the Dow Jones easing lower, hedging equity portfolios against a deeper correction is now prudent. Buying put options on major indices can provide effective downside protection if the US government shutdown materializes and spooks investors further. The VIX, a measure of expected volatility, has already risen by 12% in the past month, signaling that market anxiety is growing.
Finally, Japan’s commitment to ultra-easy monetary policy under its new leadership makes the yen an attractive currency to short. The policy divergence between a hawkish environment in the US and a dovish one in Japan creates a strong fundamental case for long USD/JPY positions. Options strategies that benefit from a rising USD/JPY exchange rate should perform well in this environment.
