Gold slumped more than 2.30% on Tuesday as the US and Iran exchanged strikes, with XAU/USD trading at $4,342 after touching $4,461. Reports of explosions in southern Iran followed confirmation from US President Donald Trump that the US Air Force had hit targets intended to reduce Tehran’s missile-launch capacity and its ability to add sea mines in the Strait of Hormuz. US Treasury yields rose, with the 10-year note up nearly four basis points to 4.792%, alongside firmer crude: West Texas Intermediate reached an intraday high near $90.00 a barrel and was up over 4.20%.
Gold had already edged lower last week after hawkish comments from Federal Reserve Chair Kevin Warsh at Jackson Hole, prompting money markets to reprice the September meeting. Rate-hike odds moved from below 40% before the speech to 71% on Prime Terminal data, with 29% for no change. US data were mixed: the ISM Manufacturing PMI for August eased to 54.6 from 55.6 and missed 55.2, while JOLTS vacancies rose to 7.217 million against 7.3 million forecasts. Technically, XAU/USD broke $4,400 and the 100-day SMA at $4,365, slipping below $4,350; support levels sit at the day’s low of $4,326, then $4,300 and the 50-day SMA at $4,215, while $4,365 would be the first step back towards $4,400. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, according to the World Gold Council.
Geopolitical Tensions and Macroeconomic Drivers Pressure Gold
We are seeing a major shift in the gold market as prices fell over 2.30% to $4,342 following the escalation of the US-Iran conflict and a spike in oil prices to $90. This geopolitical shock has pushed US 10-year Treasury yields up to 4.792%, increasing the opportunity cost of holding non-yielding gold. Historically, when real yields spike rapidly like this, gold faces heavy downward pressure as capital flows into higher-yielding government bonds.
We must also closely watch shifting interest rate expectations, especially after Fed Chair Kevin Warsh’s hawkish remarks at Jackson Hole. Market data now shows a 71% chance of a rate hike at the September meeting, up from under 40% just a week ago. Similar sharp shifts in rate expectations historically trigger prolonged sell-offs in precious metals, much like the rate hikes of 2022 which dragged gold down by over 15% in a matter of months.
Technical Outlook and Trading Strategies for Gold
Derivative traders should prepare for further downside because September is historically the weakest calendar month for gold, averaging a decline of over 1% over the last twenty years. Technically, we believe the break below the 100-day Simple Moving Average at $4,365 and the key $4,400 level signals that sellers are firmly in control. If the price closes below $4,350, we suggest positioning for a further drop toward the next major support levels at $4,300 and the 50-day SMA at $4,215.
For those trading options, we recommend utilizing bearish put spreads or selling call options to capitalize on this downward momentum while volatility remains high. We should also stay highly nimble ahead of critical economic reports this week, including the ISM Services PMI and Friday’s Nonfarm Payrolls. If gold manages to reclaim the $4,365 level, we should quickly pivot our strategies back to neutral as a path to $4,400 reopens.
