Gold (XAU/USD) edged higher on Monday as the US Dollar’s recovery lost momentum and Oil retreated from one-month highs. Price action remains constrained under a descending trendline, while support has held above $3,965, keeping a descending triangle in place. Middle East tensions continued to restrain follow-through, although comments from Iran’s Foreign Ministry spokesperson Esmaeil Baghaei about ongoing de-escalation efforts coincided with firmer risk appetite, which weighed on the Dollar and eased Oil. Meanwhile, softer-than-expected US inflation data from last week reduced expectations of further Federal Reserve tightening in coming months.
XAU/USD was trading near $4,021, with momentum indicators pointing to fading downside pressure: the 4-hour RSI moved back towards neutral and the MACD turned positive. A break above the triangle top around $4,050 would open $4,100 (July 14 high) and then $4,210 (July 6 high). On the downside, a drop below the year-to-date low at $3,941 would target $3,886 (October 2025 low), followed by the 127.2% Fibonacci extension near $3,830. Separately, central banks added 1,136 tonnes of Gold worth around $70 billion in 2022, according to the World Gold Council, the largest annual purchase on record.
Trading Strategies and Resistance Levels
We recommend that derivative traders closely watch the $4,050 resistance level on gold (XAU/USD) over the coming weeks. With the precious metal currently consolidating around $4,021, a clear breakout above this descending trendline could signal a strong trend reversal. In this bullish scenario, we suggest buying call options to target the recent July highs at $4,100 and $4,210.
Historically, gold has surged during periods of easing monetary policy, such as the massive rallies seen when the Federal Reserve paused interest rate hikes in past cycles. Last week’s softer US inflation data has once again lowered expectations for central bank tightening, which is keeping the US Dollar weak. We believe this macro backdrop provides a fertile ground for gold to break out of its current technical triangle.
Downside Scenarios and Macro Considerations
On the other hand, we must remain prepared for a downside break below the key support area of $3,965 and the year-to-date low at $3,941. If these levels fail to hold, we advise traders to buy put options to capitalize on a potential slide toward the $3,886 level. Historical data shows that when descending triangles break to the downside, the resulting sell-offs often quickly reach major Fibonacci extension targets.
We also suggest monitoring geopolitical headlines and central bank activity, as these forces continue to act as strong pillars for the metal. For instance, central banks bought a historic 1,136 tonnes of gold in 2022 and have continued aggressive purchases into recent years to diversify their reserves. To manage the current uncertainty and capture a sharp move in either direction, we can also utilize a straddle strategy ahead of the upcoming breakout.
