Gold rallied on Wednesday as a softer US Dollar and a sharp retreat in long-term US Treasury yields helped the metal recoup the prior session’s decline. XAU/USD traded around $4,458, up more than 2.5% on the day. The 10-year yield fell by over 5 bps and the 30-year yield was nearly 9 bps lower after the US Treasury said it would increase the size of liquidity-support buybacks for longer-dated government securities. Meanwhile, the US Dollar Index (DXY) hovered near 99, down 0.64%, and hit its lowest level since June 1.
Attention turns to the Federal Open Market Committee (FOMC) minutes from the July meeting, due at 18:00 GMT, with the Federal Reserve’s (Fed) rate path in focus. Since that meeting, softer labour-market and inflation readings have pushed the implied probability of a September hike down to 32%, according to the CME FedWatch tool. Technically, XAU/USD remained above the 100-day Simple Moving Average at $4,381, with RSI at 63 and the MACD histogram above zero; resistance sat at the upper Bollinger band near $4,528, while support levels were seen at $4,381, around $4,222, then $4,000 and near $3,916.
Derivatives Strategies Amid Bullish Momentum
We suggest that derivative traders should lean into the current bullish momentum as gold targets the $4,528 resistance level. Given that the metal has surged over 2.5% to around $4,458, buying short-term call options or setting up bull call spreads presents a strong risk-reward ratio. This upward move is highly supported by the US Dollar Index slipping to a multi-month low near 99.
With the FOMC July meeting minutes releasing later today, we expect near-term volatility to spike. Traders should consider using long straddles to capture sudden price swings, especially since the market currently prices in only a 32% chance of a September rate hike. Historically, sudden shifts in Fed policy expectations have triggered rapid swings in non-yielding assets, making volatility-based strategies highly attractive.
Income Generation, Macro Risks, and Long-Term Positioning
For income-generating strategies, we recommend writing put options below the solid support of the 100-day Simple Moving Average at $4,381. This floor is reinforced by massive central bank demand, as global official sectors have consistently purchased over 1,000 metric tons of gold annually in recent years to diversify away from the dollar. Even if we see a temporary pullback, this structural buying makes a deep drop below the Bollinger middle band at $4,222 highly unlikely in the coming weeks.
We must also monitor the escalating US national debt, which has now crossed the $35 trillion mark and continues to fuel debasement fears. Ongoing geopolitical tensions in the Middle East present constant upside risks to inflation, meaning any sudden energy shocks will likely drive safe-haven flows back into precious metals. Therefore, keeping long-term bullish diagonal spreads active will help us capitalize on these broader macroeconomic tailwinds.
