Gold held a firm tone above $4,400 in early European trade, staying near its highest level since 5 June, with attention turning to the US Consumer Price Index for clues on the Federal Reserve’s policy path. Oil remained near a one-and-a-half-week high as expectations for a swift reopening of the Strait of Hormuz weakened, while attacks in the Red Sea and Bab el-Mandeb added to war-risk premia and inflation concerns. The combination kept the US Dollar in focus as yields stayed elevated, even as softer labour-market signals competed with rate expectations; CME Group’s FedWatch Tool still shows a greater than 75% probability of at least one rate rise by year-end. Geopolitical tension also persisted, with North Korea launching a ballistic missile ahead of joint South Korea-US exercises, and Taiwan criticising planned naval drills involving China and an Indonesian warship.
Technically, gold is hovering around the 100-day Simple Moving Average, but remains constrained below resistance led by the 50.0% Fibonacci retracement of the April–June decline and stretching towards the 200-day SMA at $4,500.51. Support sits at the 100-day SMA at $4,388.33, followed by the 38.2% retracement at $4,298.48 and the 23.6% level at $4,161.40; below that, attention shifts to $3,939.81.
Trading Strategy for Gold and Oil Amid Inflation Risks
We advise derivative traders to exercise caution and avoid large directional bets on gold (XAU/USD) until the upcoming US CPI report is released. With gold currently hovering just above its 100-day Simple Moving Average at $4,388.33, a hot inflation print could trigger a sharp pullback toward the 38.2% Fibonacci support level of $4,298.48. Conversely, we should look to buy breakout call options if the metal decisively clears the heavy resistance near the 200-day SMA at $4,500.51.
The persistent closure of the Strait of Hormuz, which typically handles about 20% of the world’s petroleum liquid consumption, means oil-driven inflation is likely to remain high. Historical data from past energy crises shows that supply shocks can drive prolonged commodities rallies, similar to how oil supply disruptions in the late 1970s helped push gold prices up by over 300% in just a few years. As geopolitical tensions escalate in the Red Sea, we must hedge our portfolios by utilizing long call options on crude oil to capitalize on these rising war-risk premiums.
Portfolio Hedging and Options Strategies Amid Geopolitical Tensions
Despite gold’s traditional inverse relationship with the greenback, both assets are rising together due to heightened security anxieties in Asia, highlighted by North Korea’s recent missile tests. With the CME FedWatch Tool showing a strong 75% probability of another Federal Reserve rate hike this year, US Treasury yields are poised to stay elevated. To navigate this complex environment, we recommend employing neutral-to-bullish options strategies, such as buying US Dollar call options while simultaneously holding gold straddles to profit from sudden market swings.
