Gold is trading between $3,340 and $3,370 on Monday, influenced by the potential introduction of a 30% US tariff on imports from the EU and Mexico, starting 1 August. These tariff threats have supported Gold prices as a geopolitical hedge, with prices currently around $3,350 and resistance at $3,370.
Communications from US President Trump to EU and Mexican leaders have increased concerns of wide-ranging tariffs, boosting demand for Gold. On Tuesday, a busy slate of economic data, including US inflation figures, is expected to further influence Gold prices.
Shift In Momentum
Gold has breached the triangle pattern on daily charts, pointing to a shift in momentum. The price move past the 20-day SMA near $3,340 indicates increasing bullish forces, but resistance at the 23.6% Fibonacci retracement around $3,371 remains a challenge.
A sustained close above $3,371 could set up a move toward $3,400, with further potential to reach the June high of $3,452. Failure to hold above the 50-day SMA at $3,327 may shift the focus back to support at $3,300. The Relative Strength Index is near 56, suggesting bullish momentum, with space for further gains before overbought levels are reached.
Based on the current landscape, we believe derivative traders should prepare for a period of heightened volatility rather than a clear directional trend in the coming weeks. The geopolitical tensions referenced, particularly surrounding tariffs, are no longer hypothetical. The Biden administration’s recent imposition of steep tariffs on Chinese electric vehicles and semiconductors, effective August 1st, has already been priced in to some extent. Yet, the threat of retaliatory action from Beijing keeps gold’s safe-haven appeal simmering. This creates a floor under the price, but the real driver remains the Federal Reserve’s battle with inflation.
Technical Analysis And Strategy
The latest Consumer Price Index (CPI) report, which showed inflation cooling to 3.3% in May, was initially a bullish signal for gold. However, the Fed’s subsequent dot plot signaled only one potential rate cut this year, down from three projected in March. This “higher for longer” stance puts a significant cap on gold’s upside potential, as holding a non-yielding asset becomes less attractive. We are essentially caught between a geopolitical floor and a monetary ceiling. Historically, gold performs best after the *final* rate hike of a cycle, but the prolonged pause is creating indecision.
From a technical standpoint, we see a coiling spring. After failing to hold the record highs above $2,400, gold is now consolidating. The price is currently dancing around its 50-day moving average, a critical test of short-term conviction. The Relative Strength Index hovering in the low 50s confirms this neutrality; there is ample room for a move in either direction before conditions become overbought or oversold.
Therefore, our strategy shifts from directional bets to plays on volatility. For traders anticipating a sharp move after the next batch of economic data, a long strangle—buying an out-of-the-money call and an out-of-the-money put—for August expiration could be prudent. This strategy profits from a significant price swing, regardless of direction. For those with a slightly bullish bias who want to mitigate costs, we are eyeing bull call spreads, such as buying the August $2,350 call and simultaneously selling the $2,425 call. This defines the risk and reward, capitalizing on a move toward the upper end of the current range without needing a full-blown breakout above the formidable resistance left by the June high. Conversely, those holding long positions could consider collars, buying protective puts financed by selling covered calls, to guard against a breakdown below key support around the $2,300 level.
