Spot gold (XAU/USD) slid to a one-month low of $4,235 after the Federal Open Market Committee lifted the Fed Funds Target Range to 3.75%–4.00% with a 25 bps increase, helping the US Dollar. The metal was last seen around $4,250 on Wednesday, having reached an intraday high of $4,366. The statement said inflation remains elevated while economic activity expands at a solid pace, adding that job gains have kept pace with the workforce and the unemployment rate has changed little.
The Summary of Economic Projections pointed to further tightening: 12 of 18 officials pencilled in one additional 25 bps hike before year-end, while 4 saw two hikes and 2 expected none. Policymakers revised end-2026 inflation to 3.7% from 3.6% in June, and core inflation to 3.4% from 3.3%. Prices remain below the 100-day SMA near $4,326, the 20-day SMA around $4,442, and the 200-day SMA close to $4,540; resistance is flagged at $4,300, while a break under $4,200 would bring $4,000 into view.
Derivative Trading Strategies for Gold Under a Hawkish Fed
With the Federal Reserve raising interest rates to the 3.75%–4.00% range and hinting at more hikes, we believe derivative traders should aggressively position for further downside in gold. The break below the 100-day Simple Moving Average at $4,326 signals that the path of least resistance is firmly downward. We recommend buying short-term put options on XAU/USD targeting the $4,200 support level, and potentially the $4,000 mark in the coming weeks.
Macro Drivers: US Dollar Strength and Elevated Yield Environment
Historically, aggressive rate-hiking cycles create a strong tailwind for the US Dollar while crushing non-yielding assets like gold. During the Fed’s 2022 tightening cycle, the US Dollar Index (DXY) surged by over 15% to a 20-year high, which triggered a massive 20% drop in gold prices over several months. To capitalize on this current trend, we suggest traders go long on the US dollar using call options, as Chair Kevin Warsh’s hawkish stance will keep the greenback highly valued.
Additionally, rising interest rates are driving up US Treasury yields, which increases the opportunity cost of holding precious metals. With the mid-September FOMC dot plot showing that 12 out of 18 policymakers expect another rate hike this year, we anticipate bond yields will remain elevated. Derivative traders should look to sell gold futures on any short-term rallies up to the $4,300 resistance level, as the macroeconomic backdrop heavily favors sellers.
