Gold rose back above the $4,000 level on Wednesday as the US Dollar eased after comments from Federal Reserve Chair Kevin Warsh and weaker US data. XAU/USD was trading near $4,097, rebounding from a seven-month low of $3,941 set on Tuesday, though expectations for tighter policy continued to cap gains. At the ECB Forum in Sintra, Warsh said the Fed would not provide forward guidance and added that inflation risks have fallen. ADP showed private payrolls rose by 98K in June versus 113k expected and 122K in May, while the ISM Manufacturing PMI slipped to 53.3 from 54.0, below a 54.0 forecast; markets are now watching Thursday’s Nonfarm Payrolls report.
The metal has recorded its steepest quarterly decline since 2013 and is trading about 28% below the January peak near $5,600, following a two-year run that included a 67% gain in 2025. Rate expectations have shifted after an energy-driven inflation shock linked to the US-Iran war pushed inflation to more than double the Fed’s 2% target, with CME FedWatch implying a 67% probability of a September rate hike. Physical demand has also weakened: IBJA said Indian households sold nearly 50 tonnes of old gold in April–June, up 43% year on year, while India raised customs duty to 15% from 6% in May. Technical levels cited include the 20-day SMA near $4,184, support around $3,926 and $3,800, and resistance at $4,184.59, $4,300 and about $4,442; RSI is near 40 and MACD remains negative. World Gold Council data show central banks added 1,136 tonnes worth roughly $70 billion in 2022.
Gold Positioning Strategies Amid Rate Hike Expectations
We are looking at this rebound above $4,000 as a potential opportunity to position for further weakness. While Fed Chair Warsh’s comments about lower inflation risks provided a temporary lift, the broader market sentiment remains tilted toward a rate hike. The CME FedWatch Tool still shows a two-in-three chance of a hike by September, which caps any significant gold rally.
All eyes are on the Nonfarm Payrolls report due this Thursday, July 2nd. Economists surveyed by Reuters are forecasting a headline print of 130,000 jobs, and a number significantly above this would likely solidify expectations for a Fed rate hike and send gold lower. Conversely, a much weaker report could challenge the hawkish narrative and extend this current rally.
Given this, we are considering buying put options with strike prices below the $3,926 support level. Implied volatility on gold options, as measured by the GVZ index, has ticked up to 18.5 ahead of the payrolls data, reflecting the market’s anticipation of a sharp move. A break below this support could quickly target the more significant floor around $3,800, a level not seen since late 2025.
Trading Tactics and Broader Market Drivers
On the other hand, if the payrolls data comes in soft, we might see a squeeze towards the $4,184 resistance area. We could use this bounce to sell call spreads, which would profit if gold fails to break above key resistance levels like $4,300. This strategy allows us to benefit from fading the rally without taking on unlimited risk.
The fundamental driver remains inflation, with the latest core PCE data registering at 4.3%, well above the Fed’s target. This situation reminds us of the “taper tantrum” in 2013, when expectations of Fed tightening also caused a significant gold sell-off after a multi-year bull run. While we are monitoring the US-Iran talks in Doha, the lack of direct communication suggests a major geopolitical catalyst is not imminent.
