Gold traded near a one-week high in Tuesday’s European session, drawing support from a softer US Dollar while staying below $4,100. The metal’s gains were tempered by expectations that the Federal Reserve will maintain a hawkish stance as energy-related inflation risks persist. Disruptions linked to restricted traffic through the Strait of Hormuz, alongside Yemen’s Iran-aligned Houthis declaring a maritime blockade against Saudi Arabia, were cited as factors underpinning crude prices and rate expectations; CME Group’s FedWatch Tool shows markets assigning about an 83% probability of a Fed rate rise by year-end.
Geopolitical developments added cross-currents for the USD and XAU/USD. The US military carried out a 10th consecutive night of strikes on Iran, while Iran reported retaliatory attacks on US bases and allied infrastructure across the Gulf, raising the risk of wider conflict. Technically, price action improved above the 23.6% Fibonacci retracement and a descending trendline, with MACD and RSI turning positive, but the bias remains constrained below the 100-period SMA on the four-hour chart. Resistance levels are flagged at $4,052.78, $4,067.29, $4,081.40 and $4,110.01, while support lies near $4,017 and $3,960.14.
Derivative Trader Caution And The Broader Market Context
We suggest derivative traders approach the gold market with high caution over the coming weeks as prices hover just below the critical $4,100 level. While the precious metal has recently touched a one-week high, the broader trend remains capped by a strong US Dollar and rising geopolitical risks. We believe aggressive long positions are premature until we see a clear breakout above key resistance zones.
The ongoing conflict in the Middle East, particularly the shipping disruptions in the Strait of Hormuz, continues to drive up energy costs and fuel inflation fears. Historically, energy shocks like the ones seen in 1973 and 1979 have forced central banks to keep interest rates higher for longer to combat rising prices. With global oil supplies severely restricted, these persistent inflationary pressures will likely keep the US Dollar supported.
Interest Rate Expectations And Technical Trading Strategy
We must closely monitor the Federal Reserve’s next moves, especially with market indicators pricing in an 83% probability of a rate hike by the end of this year. High interest rates increase the opportunity cost of holding non-yielding assets, which acts as a heavy anchor on gold’s upward price momentum. Because of this, short-term rallies in gold might quickly run into selling pressure as long as monetary policy remains tight.
For those trading gold options and futures, we recommend watching the immediate resistance level at $4,052 and the stronger technical barrier at $4,110. On the downside, we expect solid support to hold around the $4,017 mark, with a deeper floor established near $3,960 if selling intensifies. Trading the ranges between these technical markers, rather than betting on a massive breakout, is our preferred strategy for the near term.
