Gold (XAU/USD) edged up from below $4,400, a one-and-a-half-week low set in Monday’s Asian session, with a softer US Dollar (USD) trimming part of the day’s losses. Rate expectations, however, continued to constrain bullion after Federal Reserve Chair Kevin Warsh said in Jackson Hole that inflation remains hot and that borrowing costs may need to rise without further progress. Markets are pricing roughly a 60% chance of a September increase, while CME Group’s FedWatch Tool points to an 88% probability of a December move; the shift helped lift the USD to a two-week high on Friday and drove a fall of over 3% in gold.
Geopolitical developments added to the hawkish backdrop as US-Iran tensions pushed crude higher and fed inflation concerns: US forces struck two rocket launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday, prompting Iran to fire ballistic missiles at two US bases in Jordan, while Treasury Secretary Scott Bessent said new secondary sanctions were likely to be unveiled weekly. Soft US Treasury yields limited follow-through USD buying and checked fresh gold shorts ahead of US macro data, including Friday’s Nonfarm Payrolls (NFP). Technically, price has broken below the 100-period SMA on the 4-hour chart for the first time since early August and sits under the 38.2% Fibonacci retracement; MACD remains negative and RSI is near 25, with support seen at $4,346.16, $4,263.27, $4,145.27 and $3,994.96, and resistance at $4,429.04, $4,475.07, $4,531.59 and $4,697.36.
Trading Strategies Amid Bearish Momentum
We advise derivative traders to prepare for continued volatility in gold (XAU/USD) as it struggles to hold the crucial $4,400 mark after a sharp 3% drop. Although we see a minor intraday rebound today, the broader momentum remains heavily bearish due to hawkish signals from the Federal Reserve. Any short-term price spikes in the coming weeks should be viewed as selling opportunities rather than a trend reversal.
According to the CME FedWatch Tool, the probability of a US rate hike in September has jumped to 60%, while a December hike sits at a staggering 88%. This aggressive tightening stance, recently emphasized by Fed Chair Kevin Warsh at Jackson Hole, historically strengthens the US Dollar and pressures non-yielding assets like gold. We recommend utilizing bear put spreads or short futures positions to capitalize on this downward pressure as borrowing costs rise.
Geopolitics and Technical Outlook
The escalating military conflict between the US and Iran in the Strait of Hormuz has sent crude oil prices higher, which threatens to keep global inflation sticky and reinforce the Fed’s hawkish path. Historically, geopolitical shocks spark brief safe-haven flows into gold, but the dominant force right now is the looming threat of weekly secondary sanctions from Treasury Secretary Scott Bessent. We expect this macroeconomic environment to keep US Dollar buyers active, heavily capping gold’s upside potential.
From a technical standpoint, gold’s break below its 100-period Simple Moving Average and the 38.2% Fibonacci level confirms a strong near-term bearish bias. With the Relative Strength Index sitting deeply in oversold territory near 25, we might see brief technical bounces, but the path of least resistance points toward the 50% retracement level near $4,346.16. Traders should target this support level while keeping tight stop-losses just above the immediate resistance at $4,429.04.
The upcoming US Nonfarm Payrolls report this Friday will be the next major catalyst to dictate market direction in the coming days. If the employment data comes in stronger than expected, it will likely solidify September rate hike expectations and accelerate gold’s decline toward $4,263.27. We suggest keeping position sizes conservative ahead of this high-impact release to manage sudden swings in implied volatility.
