Gold rebounded from a four-week low and traded above $4,320 in European hours, helped by a mild pullback in the US Dollar. Upside remained constrained as rising crude oil, which hit its highest level since July 24, fed inflation concerns and kept expectations biased towards a US Federal Reserve rate rise in September. The geopolitical backdrop also supported the safe-haven Greenback, weighing on non-yielding bullion, while a global bond sell-off pushed the US 10-year Treasury yield to its highest level since January 2025.
Tensions escalated after US strikes near Larak Island in the Strait of Hormuz on Sunday, described as the first since late July, followed by further US action reported by CENTCOM against IRGC targets and Iranian missile and drone attacks on US-linked interests in Bahrain, Kuwait and Jordan on Wednesday. Societe Generale flagged vulnerability in the long end of the US curve and said US 10-year yields could move towards 5%. Markets are awaiting Friday’s Nonfarm Payrolls report. Technically, MACD is negative below zero and RSI is near 44; support levels include the 200-day EMA around $4,276, then $4,236, $4,111 and $3,952, while resistance sits at $4,324, $4,412 and $4,521.
Gold’s Fragile Rally Amid Geopolitical Uncertainty
We are currently witnessing a temporary relief rally in gold, with XAU/USD hovering just above $4,320 as the US dollar experiences a minor pullback. However, we believe this recovery is fragile because escalating Middle East conflicts have pushed oil prices to multi-month highs, rekindling fears of inflation. This macro backdrop is driving expectations for a Federal Reserve rate hike later this month, which will likely cap any major upside for the precious metal.
To put this in perspective, the global bond sell-off has pushed the 10-year US Treasury yield to its highest levels since January 2025, with major institutions predicting a run toward the 5% milestone. Historically, when the 10-year yield approached the 5% threshold—much like it did back in late 2023—non-yielding assets like gold faced severe liquidations. Therefore, we advise derivative traders to avoid buying the dips and instead prepare for further downward pressure.
Positioning and Trading Strategy for Gold
We suggest looking at short-term bear put spreads or outright short positions on gold futures if prices bounce toward the immediate resistance levels at $4,324 and $4,412. A confirmed break below the 200-day Exponential Moving Average at $4,276 would open the doors for a rapid decline toward the $4,236 support level. On the other hand, call options should only be used as short-term hedges rather than directional bets right now.
With the highly anticipated Nonfarm Payrolls report scheduled for release this Friday, we expect market volatility to spike significantly. Traders should monitor the post-announcement reaction closely, as any strong labor data will likely solidify the Fed’s hawkish stance and trigger a sharp sell-off. We recommend waiting for this initial data-driven surge to clear before reloading short positions at more favorable levels.
