Gold held modest gains on Monday even as it struggled to extend an earlier rise, with the US Dollar under pressure as expectations faded that the Federal Reserve will lift rates at its September meeting. XAU/USD was near $4,401 after an Asian-session peak of $4,416, while CME FedWatch pricing implied around a 70% probability of steady policy next month, up from 48% a week earlier. Softer US data helped drive the shift: Nonfarm Payrolls fell in July, Retail Sales slipped month-on-month, and both CPI and PPI inflation moderated year-on-year.
Short-dated US Treasury yields moved lower, while longer maturities stayed close to recent highs, steepening the curve and complicating the backdrop for the currency. The Dollar Index (DXY) traded around 99.45 after touching 99.30, its lowest since 5 June. Geopolitics also remained in focus as the 60-day memorandum of understanding between the US and Iran signed in June expired on Monday without an agreement, keeping Oil prices elevated and the inflation outlook uncertain. On charts, spot hovered above the 100-day SMA at $4,385, with RSI near 65 and MACD positive; support sits at $4,200, the 50-day SMA near $4,147 and $4,000, while resistance is the 200-day SMA at $4,506.
Derivative Trading Strategy and Macro Backdrop
We recommend that derivative traders adopt a cautiously bullish strategy for gold over the coming weeks as the metal hovers near $4,401. With the US Dollar Index slipping to a multi-month low of 99.45, the macroeconomic environment heavily favors precious metals. We should look to establish long positions on dips, especially with the 100-day Simple Moving Average providing a strong floor at $4,385.
This bullish stance is supported by a rapid shift in interest rate expectations, with CME FedWatch data showing a 70% probability that the Federal Reserve will hold rates steady in September. Historically, during previous Fed rate-pause cycles such as in 2006 and 2019, gold prices rallied by an average of 8% to 12% in the subsequent six months. Derivative traders can exploit this historical trend by buying near-term call options targeting the 200-day Simple Moving Average at $4,506.
Geopolitical Risks and Technical Considerations
However, we must remain highly alert to geopolitical volatility as the 60-day US-Iran memorandum of understanding expires today without a formal resolution. This diplomatic stalemate threatens to disrupt energy corridors in the Strait of Hormuz, which could drive crude oil prices higher and revive global inflationary pressures. To hedge against this sudden volatility, we suggest utilizing bull call spreads, which limit our premium risk while still capitalizing on potential upward breakouts.
From a technical perspective, the daily Relative Strength Index is sitting comfortably at 65, meaning there is still plenty of room for upward movement before gold becomes overbought. We should place strict stop-loss orders just below the crucial structural support at $4,200 to protect capital against sudden market reversals. Balancing long futures exposure with protective puts will allow us to navigate this high-stakes environment effectively in the weeks ahead.
