Gold (XAU/USD) touched above $4,600 in Friday’s US session, its highest level since May 15, before easing to about $4,580 and remaining on course for a third straight weekly gain. The metal is up about 13% this month, after the US Treasury said it would double liquidity-support buybacks for longer-dated government securities to at least $4 billion per operation; long-end yields fell at first, then retraced much of the move. The US Dollar has weakened alongside the move, with the US Dollar Index (DXY) around 98.75 near a three-month low, while central-bank buying and stronger inflows into gold ETFs have kept demand supported.
Policy uncertainty has also shaped pricing, with the Federal Reserve (Fed) under Chairman Kevin Warsh giving less weight to forward guidance, and recent US jobs and inflation figures lowering the odds of a rate rise at the next meeting. Headwinds remain as elevated Treasury yields raise the opportunity cost of a non-yielding asset, while energy-led inflation risks persist with oil prices tied to the US-Iran impasse and the Fed’s 2% target.
Technically, XAU/USD is above the 50-day, 100-day and 200-day SMAs, with RSI near 70 and ADX around 32 as MACD stays constructive. Resistance sits around $4,600 and then $4,750; support is seen at $4,514, $4,379, $4,172 and $4,000.
Derivative Strategies and Technical Considerations
We believe derivative traders should exercise caution near the current $4,600 resistance level as gold reaches a three-month high. With the Relative Strength Index (RSI) hovering near 70, the market is flashing overbought signals that suggest a short-term pause. We recommend utilizing options strategies, such as buying short-term protective puts, to hedge against a potential corrective pullback toward the 200-day Simple Moving Average at $4,514.
Our bullish long-term outlook remains intact due to the US Dollar Index slipping near a three-month low of 98.75. Historically, a weakening dollar strongly supports precious metals, much like the macro trends that drove gold’s historic rallies in previous financial cycles. To capitalize on this, we favor executing bull call spreads with strike prices targeting $4,750 if gold successfully breaks and consolidates above the $4,600 mark.
Market Fundamentals and Volatility Considerations
We must also consider that underlying demand is incredibly strong, driven by central bank accumulation and rising exchange-traded fund (ETF) inflows. For instance, global central banks have historically purchased over 1,000 metric tons of gold annually to diversify their reserves, establishing a highly supportive floor for the metal. Traders can write cash-secured puts near the $4,379 and $4,172 support levels to collect premium while positioning to buy the metal on dips.
However, we need to remain vigilant as the US Treasury’s doubled liquidity buybacks of $4 billion per operation keep bond markets highly volatile. Rising energy prices from geopolitical stalemates also threaten to keep inflation sticky, which might force the Federal Reserve to adjust its policy path unexpectedly. Consequently, we suggest using long straddles or strangles to profit from sharp, sudden breakouts in either direction as these macro uncertainties unfold.
