Market Conditions
The CME FedWatch Tool indicates a 97% probability of an October Fed rate cut and a 76% chance for December. These expectations impacted the US Dollar, enhancing Gold’s attractiveness for foreign buyers.
Concerns over a potential US government shutdown also bolstered Gold prices. Republicans and Democrats remain at a standstill, risking a shutdown and suspension of data releases by the US Labor Department.
Gold serves as a store of value, a jewellery material, and a safe-haven asset, especially during uncertain times. Central banks are significant Gold buyers, adding 1,136 tonnes worth approximately $70 billion in 2022. The metal’s price correlates inversely with the US Dollar and Treasuries, often rising with diminished interest rates.
With gold hitting a new all-time high of $3,871, the upward momentum is clearly strong. Derivative traders should view this as a potential new trading floor, not necessarily a peak. The underlying conditions suggest this rally has more room to run in the coming weeks.
The market is pricing in a 97% probability of a Federal Reserve rate cut in October, a near certainty that should continue to fuel gold’s rise. Buying call options on gold futures or related ETFs offers a direct way to gain exposure to this expected move. We saw a similar setup develop ahead of the rate cuts in late 2024, which preceded a significant price jump.
Factors Influencing Gold
This dovish outlook is supported by recent labor statistics, as the September Non-Farm Payrolls report showed job growth of only 95,000, falling short of the 150,000 consensus. This weakness is weighing on the US Dollar, which has fallen 2% over the last month against a basket of currencies. A weaker dollar makes gold cheaper for foreign buyers and amplifies its appeal.
The risk of a US government shutdown is also creating uncertainty, which traditionally pushes investors toward safe-haven assets. A shutdown would delay key economic data, leaving the market guessing and likely increasing volatility. We observed a comparable flight to safety during the brief shutdown scare in the first quarter of 2025.
We should also recognize the powerful, steady demand from global central banks, which have been buying aggressively all year. Data released for the third quarter of 2025 showed central banks collectively purchased another 280 tonnes, with the People’s Bank of China being the top buyer for the 23rd month in a row. This institutional support provides a strong fundamental backdrop for higher prices.
Given that prices are at record highs, traders should manage risk carefully. Using bull call spreads allows for participation in further upside toward the $4,000 psychological level while capping potential losses. This is a more prudent strategy than holding outright long futures positions at these elevated levels.
Volatility in the broader market also supports a bullish stance on gold. The CBOE Volatility Index (VIX) has remained elevated above 22 for the past month, signaling sustained fear in equities. Selling out-of-the-money put options on gold can be a way to collect premium while taking the view that this underlying fear will prevent any sharp sell-offs in the metal.
