Gold fell nearly 1% in thin Monday trading, with US markets shut for Presidents’ Day and China closed for the New Year. XAU/USD traded at $4,992 after a daily high of $5,054, slipping below $5,000.
The US Dollar Index rose 0.22% to above 97.00, which weighed on gold. Markets still price 60 basis points of Federal Reserve rate cuts by year-end, despite last week’s strong US Nonfarm Payrolls and mild inflation data.
Fed Signals And Yield Moves
US Treasury yields dropped on Friday, with the 10-year yield down five basis points to 4.05% after reaching 4.125%. Chicago Fed President Austan Goolsbee said services inflation remains high and he wants further progress on inflation before rates fall.
Money markets expect the Fed to leave rates unchanged at the March 18 meeting, according to Prime Market Terminal data. This week’s US data includes Durable Goods Orders, housing figures, Fed speakers, FOMC Minutes, Initial Jobless Claims, the second estimate of Q4 2025 GDP, and core PCE inflation.
Geopolitical developments include Russia–Ukraine talks in Geneva on February 17. Iran has held naval drills in the Strait of Hormuz ahead of planned talks with Washington.
Technically, gold has posted three sessions of lower highs from the February 11 peak of $5,119, with resistance near $5,100. Support levels are the 20-day EMA, then $4,900, then $4,800, with the 50-day EMA at $4,634; resistance is $5,050 and $5,119.
Immediate Technical Bias
Given that gold has decisively broken below the $5,000 psychological level, we see this as a bearish signal for the immediate term. The move is being driven by a stronger US dollar, and with low holiday liquidity, this price action could be exaggerated. Traders should view the $5,000 mark as a new level of resistance for the coming days.
The key conflict to watch is the market pricing in 60 basis points of rate cuts against hawkish Fed sentiment and strong data. Last month’s Core PCE print, which came in at 3.1% year-over-year, shows that inflation remains sticky and supports the Fed’s cautious stance. This suggests the market’s rate cut expectations might be overly optimistic, creating a downside risk for gold if those expectations are repriced.
We saw this exact scenario play out a few years ago, back in 2023, when markets repeatedly tried to price in a Federal Reserve pivot that never came. The Fed held rates higher for longer than anticipated, strengthening the dollar and pressuring gold. This historical precedent should serve as a strong note of caution against assuming rate cuts are imminent.
Volatility is almost certain to increase this week with the FOMC Minutes and Core PCE data on the calendar. Geopolitical risks are also rising, with Iran’s naval drills and talks with Russia; we’ve already seen implied volatility on crude oil futures jump 15% in the last week. This environment is ideal for options strategies that profit from price swings, such as long straddles.
For those with a bearish conviction, buying put options with a strike price near the next support level of $4,900 makes sense. This strategy offers a defined-risk way to profit if hot inflation data forces the market to reconsider its dovish Fed bets. A break below $4,900 would likely trigger a swift move toward the $4,800 level.
Conversely, the tensions in the Strait of Hormuz cannot be ignored, as any escalation could trigger a flight to safety. A cost-effective hedge would be to purchase far out-of-the-money call options, for instance with a $5,150 strike price. This provides protection against a sudden geopolitical shock without committing significant capital to a bullish position.
Ultimately, the dollar remains the most important factor, and we should not forget that the DXY index traded as high as 114 back in 2022. With the index currently just above 97, there is substantial room for it to run higher if the Fed remains steadfast. This potential for dollar strength is the single largest headwind facing gold in the coming weeks.
