Gold remained stable, avoiding a downside breakout after US inflation data were below expectations. This pushed investors into defensive positions due to potential tariff issues, even with a likely delay in tariff deadlines.
Amid decreasing real yields due to possible Fed easing, gold is expected to maintain an upward trend. However, any hawkish shifts in interest rate expectations might cause short-term corrections.
Technical Analysis
On the daily chart, gold rebounded from a key upward trendline, with buyers targeting a rally towards the 3438 resistance, while sellers eye a break below the trendline to approach the 3120 level. The 4-hour chart shows a minor resistance around 3377, with sellers anticipating a potential price dip below the main trendline, while buyers aim for a rise to the 3438 level.
In the 1-hour chart, a minor upward trendline supports bullish momentum. Buyers are likely to defend this trendline targeting a break beyond minor resistance, whereas sellers will look for a dip below this line aiming for the major trendline breakout.
Upcoming events include Fed Chair Powell’s speech, US Jobless Claims, and the flash US PMIs, potentially affecting gold prices.
Recent Data and Strategies
We see the recent US Consumer Price Index data, which came in cooler than expected at 3.3% annually, as a signal for cautious bullishness. Derivative traders could respond by using strategies like buying call spreads, which bet on a price increase while defining downside risk. Market pricing, according to the CME FedWatch Tool, now shows over a 65% probability of an interest rate cut by September, reinforcing this upward bias.
The prospect of tariffs adds another reason to maintain exposure to gold’s potential rise. Historically, during the 2018-2019 trade disputes, gold rallied over 20% as global uncertainty mounted, offering a clear precedent for the current situation. This suggests that selling out-of-the-money put options is a viable strategy to collect premium, as these geopolitical concerns should provide a floor for the price.
From our perspective, the major upward trendline remains the critical line in the sand for any strategy. A bull put spread, with the short strike placed safely below this trendline, is an attractive way to generate income while maintaining a bullish view. Should the price break below that key level, it would be our signal to exit bullish trades and consider buying puts to target a drop toward the 3120 support zone.
Upcoming commentary from Powell and the latest jobless claims figures will likely create short-term price swings. With initial claims recently hitting a 10-month high, any sign of further labor market weakness could fuel a rally through the minor 3377 resistance. Traders could position for this by purchasing short-dated call options to capitalize on a potential breakout with limited capital at risk.
