Gold slid more than 3.4% on Monday as US Treasury yields pushed higher and oil stayed elevated, keeping pressure on XAU/USD. The metal traded at $4,139 after earlier touching $4,280. West Texas Intermediate (WTI) eased from its intraday peak but remained firm at $93.00 a barrel, up 0.6%, after opening the week with gains of nearly 3%. Conflicting reports on a possible US-Iran arrangement added volatility: Al Hadath said Iran would halt uranium enrichment, while Press TV denied any shift, and on Saturday President Donald Trump rejected a deal linked to reopening the Strait of Hormuz.
The US 10-year Treasury yield rose to 5.27%, its highest since June 2007, before trimming to 5.23%. Expectations for tighter Federal Reserve policy also lingered, with money markets pricing a 65% chance of a 25-basis-point hike in October and odds of 94% for December, according to Prime Terminal. On the charts, gold broke down from a bullish wedge and eyed the August 3 low of $4,019; bears are watching $4,100 and $4,050, while a rebound would need $4,200 and the 100-day and 50-day SMAs at $4,298 and $4,319. Separately, central banks added 1,136 tonnes of gold worth around $70 billion in 2022, World Gold Council data show.
Downward Pressure on Gold Amid Macro Volatility
We are seeing significant downward pressure on gold as XAU/USD plummeted over 3.4% to $4,139, driven by surging US 10-year Treasury yields that recently touched 5.27%. This sudden drop came alongside heightened oil prices near $93 and conflicting reports regarding a potential US-Iran nuclear deal. In this highly volatile environment, we advise derivative traders to prepare for sharp swings in the coming weeks.
With money markets pricing in a 94% probability of a Federal Reserve rate hike by December, the macroeconomic backdrop heavily favors a stronger US Dollar. This expectation is backed by historical trends where rising yields increase the opportunity cost of holding non-yielding gold, similar to the market dynamics seen when yields neared 5% in late 2023. We should closely watch the upcoming JOLTS and Nonfarm Payrolls reports, as strong labor data will likely cement these hawkish expectations.
Technical Outlook and Trading Strategy
From a technical perspective, gold has broken below its bullish wedge pattern, indicating that bearish momentum is firmly in control. We recommend looking at short-term put options with strike prices targeting the $4,100 and $4,050 levels. A clean break below $4,100 could quickly expose the August low near $4,019, making bearish vertical spreads an attractive risk-defined play.
On the other hand, we must remain cautious of sudden reversals if geopolitical tensions in the Middle East escalate further. To confirm a true bullish shift, the price would need to break above the key resistance at $4,200 and the major moving averages near $4,300. Until then, we should favor strategies that benefit from high volatility and downward pressure on the precious metal.
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