Gold traded sideways on Thursday near $5,000, with XAU/USD around $4,975 after an intraday high near $5,021. Strong US data pushed the US Dollar to near one-month highs, limiting gold’s gains.
US Initial Jobless Claims fell to 206K for the week ending 14 February, below the 225K forecast and down from 229K. The Philadelphia Fed Manufacturing Survey rose to 16.3 in February, above 8.5 expected and up from 12.6 in January.
Fed Minutes Signal Rates Higher Longer
The Fed’s January meeting minutes showed a cautious, hawkish stance, with several officials supporting keeping rates steady for some time. The minutes also left open the option of further rate rises if inflation stays above target, while some noted cuts could come later if inflation eases.
Geopolitical risk remained elevated after CBS News reported the US military is preparing for possible strikes on Iran as soon as Saturday. The report cited sources and referred to a recent US military build-up in the Middle East.
On the 4-hour chart, price held above the 20-period SMA near $4,954 as Bollinger Bands narrowed, with the upper band near $5,047. RSI was 53 and ADX was 19.51, with support seen near $4,955–$4,900 and the lower band near $4,862.
Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual purchase on record. Gold often moves inversely to the US Dollar and US Treasuries, and it tends to benefit when interest rates fall.
Trade Ideas For A Volatility Breakout
The current sideways movement in gold presents a classic setup for volatility-based trades, especially with major economic data due on Friday. We are seeing a tug-of-war between a strong US dollar, bolstered by hawkish Fed sentiment, and significant geopolitical risk from potential US action in Iran. This tension is reflected in the narrowing Bollinger Bands, suggesting a significant price move is becoming more likely.
We should be cautious about betting too heavily against gold, remembering the pattern from late 2023 when strong economic reports repeatedly delayed expected Fed rate cuts, strengthening the dollar. Current US jobless claims are below 210,000, a level not consistently seen until the tight labor market of early 2024, which gives the Fed room to remain patient. This suggests the dollar’s strength could persist, capping gold’s immediate upside near the $5,050 resistance level.
However, the threat of military action against Iran creates a powerful asymmetric risk to the upside. We saw a similar, though less direct, situation in October 2023 when the Israel-Hamas conflict ignited; gold rallied over 8% in just three weeks. Any direct confrontation involving the US and Iran would likely trigger a much more dramatic flight to safety, overwhelming the impact of Fed policy in the short term.
Given the low implied volatility signaled by the tight price range, buying options is currently cheaper than usual. A long straddle, which involves buying both a call and a put option with the same strike price and expiration, is a suitable strategy. This position would profit from a sharp price break in either direction following this weekend’s geopolitical developments or Friday’s PCE inflation report.
Underlying support for gold remains exceptionally strong due to persistent central bank buying, which makes selling naked calls risky. We know that central banks collectively purchased over 1,000 tonnes of gold in both 2023 and 2024, creating a strong floor for the metal. This suggests that selling cash-secured puts or initiating bull put spreads with strike prices below the $4,900 support level could be a viable strategy to collect premium while positioning for a potential bounce.
For those expecting the consolidation to continue, an iron condor is an option. This strategy involves selling an out-of-the-money call spread above resistance at $5,050 and an out-of-the-money put spread below support at $4,900. It is a defined-risk trade that profits if gold’s price remains between these key levels through the options’ expiration.
