Gold traded near August highs, with XAU/USD at $4,423 and holding above $4,400 as the US Dollar stayed under pressure after August releases reduced expectations of a Federal Reserve rate rise in September. Recent data showed Retail Sales fell 0.6% month on month in July, while the University of Michigan Consumer Sentiment index slipped to 51 in August from 55.2. The Federal Open Market Committee is due to publish minutes of its July meeting on Wednesday.
Geopolitics also remained in focus, with reports that the US and Iran are working to extend a Middle East ceasefire by 60 days, even as separate headlines said Iran shifted to a fully offensive posture, according to Reuters. Oil was little changed, with West Texas Intermediate near $81 a barrel. On charts, the metal held above the four-hour 20-period SMA at about $4,383.06, while the 100-period and 200-period SMAs were rising near $4,212.86 and $4,145.95; momentum indicators included a 14-period RSI around 61. The daily picture showed price above the 100-day SMA at $4,386.20 and the 20-day SMA at $4,195.52, with the 14-day RSI near 66, and resistance flagged at the 200-day SMA around $4,506.84.
Trading Strategy and Market Drivers
We believe derivative traders should maintain a bullish bias and look to buy the dips as gold holds strong above the $4,400 level. The recent weakness in the US Dollar, driven by a 0.6% contraction in July retail sales and a drop in consumer sentiment to 51, provides a strong tailwind for precious metals. Historically, when the Federal Reserve pauses rate hikes during economic slowdowns, gold tends to outperform, similar to its massive run during past easing cycles.
Technical Considerations and Risk Management
To capitalize on this momentum, we suggest utilizing bull call spreads or long futures contracts with entry points close to the immediate support level of $4,383. This level is heavily reinforced by the 20-period simple moving average, making it a logical entry point for buyers looking to ride the wave toward $4,500. For tight risk management, protective stop-loss orders on long positions can be placed just below the key 100-day moving average at $4,386.
Geopolitical uncertainties, such as the shifting military postures between the US and Iran, continue to support gold’s safe-haven appeal. Industry statistics show that global central bank purchasing has remained historically high, with net purchases consistently exceeding 1,000 tonnes annually to hedge against systemic inflation. We advise keeping a close eye on the upcoming FOMC minutes this Wednesday, as any hints of a prolonged rate pause will likely spark the momentum needed to target the $4,506 resistance level.
