Gold (XAU/USD) traded around $4,429, up 1.38%, after moving above $4,400 as July US inflation data broadly matched forecasts. Headline CPI rose 0.1% month-on-month after a 0.4% fall in June, while the annual rate eased to 3.4% from 3.5%. Core CPI increased 0.2% MoM after being flat, and the yearly measure slowed to 2.5% from 2.6%. The USD weakened and US Treasury yields fell, with DXY around 99.70, down 0.10%, and the 2-year yield near 4.180% after dropping four basis points.
Markets still see inflation above the Fed’s 2% target, and expectations for a September rate rise were little changed, with CME FedWatch showing a 44% probability. WTI traded near $82, close to a one-and-a-half-week high, while the EIA lifted its 2026 average WTI forecast to $80.88 a barrel from $76.26. On the chart, XAU/USD is above the 50-day SMA and just over the 100-day SMA, with the 200-day SMA at $4,500; RSI sits at 68 and ADX at 30, while support levels are cited at $4,388, $4,148 and $4,000.
Trading Strategy and Technical Setup
With US inflation cooling and the annual core CPI dropping to 2.5%, we believe derivative traders should position for continued upward momentum in gold. Since the US Dollar Index has slipped to 99.70 and Treasury yields are falling, we recommend buying short-term call options on XAU/USD. This macro environment strongly favors precious metals as the opportunity cost of holding non-yielding gold decreases.
However, with the Relative Strength Index hovering near 68, gold is approaching overbought territory, meaning we could see some temporary price consolidation. We advise traders to establish long positions on pullbacks, using the 100-day Simple Moving Average at $4,388 as a key entry point. Historically, similar technical setups where the Average Directional Index sits around 30 indicate a healthy, sustainable trend rather than a sudden blow-off top.
Geopolitical Factors and Risk Management
Geopolitical risks in the Middle East, especially threats surrounding the Strait of Hormuz, provide a strong safety net for our bullish outlook. During past major geopolitical energy shocks, gold prices have historically spiked by an average of 10% to 15% within a few weeks as investors rushed to safe-haven assets. We should target the 200-day Simple Moving Average at $4,500 for our profit-taking zones while keeping protective stop-losses just below the $4,148 level.
