Gold (XAU/USD) fell nearly 3% on Monday to around $4,150, its lowest since August 5, as higher oil prices and multi-year high bond yields reinforced expectations of further Federal Reserve tightening. The metal is down about 25% from its January peak near $5,600, while the 10-year US Treasury yield rose to 5.23%, its highest since 2007. Markets are pricing another move after the Fed’s 25-basis-point hike on September 15-16, with CME FedWatch indicating a 70% probability of an October increase; the US Dollar Index traded near 101.16, adding pressure.
Oil has been volatile since late February after US-Israel strikes on Iran escalated into a wider conflict and disrupted supply routes through the Strait of Hormuz. Donald Trump rejected Iran’s proposal to reopen the strait within seven days, though further talks are expected, with mediators said to be meeting US and Iranian officials on Monday or Tuesday. On the charts, XAU/USD remains below its 50-day, 100-day and 200-day SMAs; RSI is 36 and MACD is below zero. Resistance sits at $4,298, $4,320, $4,540 and $4,700, while support is seen at $4,150 and $4,000; attention turns to PCE inflation on Wednesday, ISM PMI on Thursday and NFP on Friday. Central banks added 1,136 tonnes of gold worth about $70bn in 2022.
Derivative Traders’ Outlook: Bearish Bias and Options Strategies
We believe derivative traders should maintain a bearish bias on gold in the coming weeks as prices continue to trade well below key moving averages, including the 200-day simple moving average. With the 10-year US Treasury yield holding at 5.23%, its highest level since 2007, the opportunity cost of holding the non-yielding metal remains prohibitively high. For options traders, buying near-term put options targeting the psychological $4,000 support level offers a calculated way to benefit from this downward momentum.
We must also monitor global oil markets closely, where Brent crude has fluctuated around $90 a barrel due to supply concerns in the Middle East. These elevated energy costs continue to feed into global inflation, reinforcing expectations for tighter monetary policy. This macroeconomic environment historically keeps gold under pressure, meaning traders can look to sell call options on temporary price rebounds to capture premium decay.
Volatility Expectations and Risk Management
Additionally, we expect heightened volatility this week as the market digests US PCE inflation, ISM PMI, and Nonfarm Payrolls data. Because federal funds futures currently price in a 70% chance of a rate hike in October, unexpected strength in this economic data could trigger sharp market movements. Implementing long straddle or strangle strategies ahead of these releases will allow traders to profit from major volatility breakouts, regardless of which direction the market swings.
While the primary trend is firmly down, we should watch the daily Relative Strength Index, which is currently sitting near oversold territory at 36. This suggests that while selling pressure is dominant, a brief, short-covering bounce remains a distinct possibility. To manage this risk, futures traders should use tight trailing stops to lock in gains as prices approach the critical $4,150 support floor.
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