Gold posted its biggest weekly gain since January, pushing above $4,300 for the first time since mid-June and later trading beyond $4,350 as markets pared back expectations of a Federal Reserve rate rise in September. Softer US data helped drive the move: ADP reported private payrolls up 44K in July versus a 70K consensus, while the ISM Services PMI employment gauge slipped into contraction at 47.4 from 51.2. The CME FedWatch Tool put the probability of a September hike at about 55%, down from nearly 70% a week earlier, and gold rose more than 4% on Wednesday, its largest one-day gain since early February. BLS data then showed July NFP fell 23K, following a 20K June rise that was revised down from 57K and missing an 80K forecast.
Focus now turns to US July CPI due Wednesday, with consensus at 0.1% m/m and core CPI at 0.2% after 0.0% in June. Technically, daily RSI is at its highest since late January, with resistance at the 100-day SMA of $4,390 and $4,495-$4,510, where the 200-day SMA meets the 38.2% Fibonacci retracement; a break points to $4,680 at the 50% retracement. Support is marked at $4,300, then $4,150 and $4,100-$4,080, with $3,965 beneath. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual purchase on record.
—Gold Derivative Trading Strategy and Outlook
We advise derivative traders to position for continued upward pressure on gold as it consolidates its breakout above the $4,300 mark. Following the metal’s historic run over the last two years, which saw prices steadily climb from the mid-$2,000s, this latest technical breakout signals a strong bullish reversal. Leveraged long positions or call options are highly attractive right now, provided the critical support level at $4,300 holds.
The upcoming July inflation report is the next major catalyst we need to watch, with markets expecting a modest core CPI increase of 0.2%. If the inflation print comes in softer than expected, we anticipate a quick run toward the 100-day Simple Moving Average at $4,390. Under this scenario, buying short-term gold call options will allow us to capitalize on falling US Treasury yields as September rate hike bets melt away.
On the flip side, we must protect our portfolios against a hotter-than-expected inflation reading, which would likely revive rate hike fears. In this case, we recommend placing tight stop-loss orders just below the $4,150 and $4,100 support zones to prevent heavy drawdowns. Historically, gold has shown sharp knee-jerk pullbacks of 3% to 5% when inflation data surprises to the upside, making strict risk management essential this week.
—Hedging Geopolitical Risk With Gold and Oil
We also suggest using crude oil options to hedge against sudden geopolitical shifts in the Middle East, particularly around the Strait of Hormuz. While easing tensions have temporarily dragged oil prices down and boosted gold, any sudden breakdown in shipping negotiations could quickly reverse this trend. Because renewed conflict would spike energy prices and reignite inflation fears, holding long volatility strategies on both assets will help us navigate the coming weeks.
