Gold eased 0.19% on Monday, with XAU/USD at $4,011, as hostilities between the US and Iran continued after a ceasefire collapsed nine days ago. The conflict has kept energy prices elevated on concerns about oil supply disruption: the US struck military targets for a ninth straight day near the Strait of Hormuz, while Iran hit US military assets in Gulf states, and Ansar Allah declared a naval blockade on Saudi Arabia. Oil steadied as West Texas Intermediate turned positive, rising 0.33% to $82.05 a barrel, while the US 10-year Treasury yield climbed nearly five basis points to 4.598%. The US Dollar Index added 0.19% to 100.94, adding pressure on bullion.
Rate expectations remain central, with money markets pricing an 82% chance of a hike by year-end, while implying a nearly 79% probability of no change at the July meeting. Next week brings US jobs data and S&P Global Flash PMIs as the Fed heads into its blackout ahead of the 29 July decision. Technically, a drop below the 17 July low at $3,959 could open $3,900 and then $3,886; upside requires a break of the descending trendline at $4,125–$4,175, with resistance at the 50-day SMA of $4,291 and the 200-day SMA of $4,495, before $4,500. Central banks bought 1,136 tonnes of gold worth about $70 billion in 2022, and gold remains inversely correlated with the USD and Treasuries.
Bearish Outlook and Technical Levels
We advise derivative traders to lean bearish on gold in the coming weeks as XAU/USD remains downwardly biased near the $4,011 mark. The current technical outlook shows a clear pattern of lower highs and lower lows, supported by a bearish Relative Strength Index (RSI). If the price breaks below the July 17 low of $3,959, we should position for a further drop toward the $3,900 psychological support.
Rising bond yields are heavily weighing on the precious metal, with the US 10-year Treasury yield climbing to 4.598% amid energy-driven inflation worries. Historically, a strong negative correlation of around -0.4 to -0.6 exists between gold and Treasury yields, meaning higher yields make the non-yielding asset less appealing to investors. Since money markets are pricing in an 82% probability of a Federal Reserve rate hike by year-end, we expect upward pressure on yields to persist.
Even though Middle East conflicts usually spark safe-haven demand, the current rise in crude oil to $82.05 is fueling fears of persistent inflation rather than a rush to gold. We should utilize options strategies, like buying put options, to capitalize on this downward trend while limiting risk from sudden geopolitical headlines. Any sudden trend reversal would require gold to break out of its descending trendline between $4,125 and $4,175.
Market Volatility and Risk Management
Looking ahead, we must prepare for heightened market volatility as Fed officials enter their blackout period before the July 29 policy meeting. Incoming economic reports, such as the S&P Global Flash PMIs and employment numbers, will heavily influence whether the Fed holds interest rates at the current 79% probability. We suggest maintaining tight risk management and keeping a close eye on these macro releases to adjust our short positions accordingly.
