Gold (XAU/USD) edged up to $4,065 on Friday, a 0.38% rise, even as the US Dollar Index (DXY) firmed to 101.46 and was on track for weekly gains of over 0.60%. Support came from lower US yields, with the 10-year Treasury rate down three basis points to 4.667%. US activity data were mixed: S&P Global Manufacturing PMI dipped to 53.8 from 53.9 versus 54.5 expected, while Services PMI climbed to 53.6 from 51.2 against a 51 forecast. Oil retreated, with WTI down 3.83% to $88.79, though it remained set for a weekly gain of over 8.50%.
Rate expectations also shifted. For the 29 July Federal Reserve meeting, markets price a 59% chance of no change and close to a 41% chance of a 25 bps hike, while the probability of a September increase stands at 84%, according to Prime Terminal. On the charts, resistance sits at $4,100, then $4,165 and $4,200, while support levels are $4,000 and the YTD low of $3,941, ahead of $3,886 and $3,500. Technical indicators cited include the 50-, 100- and 200-day SMA above spot and a bearish RSI, with $4,382 flagged as a key June 17 level.
Gold Derivatives: Volatility, Technicals, and Strategy
We believe derivative traders should prepare for heightened volatility in gold (XAU/USD) options as geopolitical tensions in the Gulf War keep the market on edge. Although gold has drifted up to $4,065 today, the underlying technical downtrend remains very much intact under the key $4,100 resistance level. We should look to capitalize on short-term rallies by buying put options, especially with the 50-day and 200-day moving averages hovering safely above the current spot price.
The upcoming Federal Reserve decision on July 29 presents a major trading catalyst that we must navigate carefully. While money markets price in a 59% chance of a pause, the 41% probability of a surprise 25-basis-point rate hike could quickly send Treasury yields back above their current 4.667% level. Historically, unexpected rate hikes have triggered sharp gold sell-offs, meaning short-dated bear call spreads could yield strong returns if the Fed leans hawkish next week.
Long-Term Outlook and Macro Considerations
We must also consider the structural floor under gold, which has been heavily supported by historic central bank buying. For instance, World Gold Council data shows central banks bought over 1,037 tonnes in 2023, a massive trend of diversification that has accelerated through 2025 and into 2026. This ongoing demand from emerging economies suggests that any drop toward the major support at $4,000 or the year-to-date low of $3,941 should be treated as a prime zone to accumulate long-term call options.
We need to watch the energy sector closely, as WTI crude’s weekly surge of over 8.5% to $88.79 signals that inflation fears are far from over. If energy-driven inflation remains sticky, the Fed is highly likely to follow through on the 84% probability of a September rate hike. Derivative traders should use this macroeconomic pressure to short gold futures on tests of the $4,100 to $4,165 resistance zones.
