Gold rose about 0.92% on Friday, with XAU/USD trading at $4,013 after touching an intraday low of $3,959, as renewed US-Iran hostilities lifted energy prices and fuelled inflation concerns. Reports of further escalation weighed on risk appetite even as US equities continued to recover, helping support demand for the non-yielding metal. Axios said the Trump administration is sending dozens of additional refuelling planes to Israel ahead of a potential expansion of military operations.
US data were mixed for bullion. The University of Michigan’s July consumer sentiment index improved to 54 from 50.7, while one-year inflation expectations eased to 4.2% from 4.6% and five-year expectations held at 3.3%. In rates markets, Prime Terminal showed a nearly 61% probability of a Fed increase at the 28 October meeting, while the July decision is priced for no change with a 76% probability, and next week’s calendar includes jobs data and S&P Global flash PMIs ahead of the 29 July meeting blackout. Technically, the RSI remains below 50; support sits at $4,000 then $3,959, $3,900 and $3,886, while resistance is seen at $4,125–$4,175, followed by the 50-day SMA at $4,291 and the 200-day SMA at $4,495 before $4,500.
Geopolitical Tensions and Inflationary Pressures Impact Gold
As we watch the US-Iran conflict escalate, geopolitical tensions are pushing energy prices up and keeping gold volatile near the $4,013 mark. While these fears have temporarily boosted the metal, we must remember that rising energy costs fuel inflation, which increases the likelihood of a Federal Reserve rate hike later this year. Historically, geopolitical shocks create short-term spikes in gold, but sustained rate-hike threats often cap these gains.
Despite gold reclaiming the key $4,000 level, the overall technical setup remains bearish with the Relative Strength Index sitting below the 50-neutral mark. For derivative traders, we recommend buying put options or establishing bear call spreads near the $4,125 to $4,175 resistance zone. If gold fails to clear this descending trendline, we expect a rapid slide back toward the key support levels of $3,959 and $3,900.
Trading Strategies and Market Outlook Ahead of Key Data Releases
With next week bringing crucial US jobs data and the S&P Global Flash PMIs right before the July 29 Fed meeting, we anticipate a sharp rise in implied volatility. Traders can exploit this by utilizing long straddles or strangles to profit from sharp movements in either direction as the market digests these economic indicators. This approach is highly credible given that past periods of pre-meeting blackout volatility have historically led to sharp, short-term swings in bullion derivatives.
We must also closely monitor the shifting interest rate expectations, where markets currently price in a 61% chance of an October rate hike. This hawkish backdrop, supported by recent comments from Fed officials, means any relief rally in gold will likely face heavy selling pressure near the 50-day moving average of $4,291. Positioning for a medium-term bearish trend while hedging against sudden geopolitical headlines will be our primary focus in the coming weeks.
