Gold held above $4,100 in early European trading on Wednesday but struggled to extend modest gains, as the US Dollar eased ahead of the June FOMC Minutes. The metal had retreated from just above $4,200, a two-week high set on Monday, and the wider macro backdrop kept risk skewed to the downside. Geopolitical developments added complexity: the US launched a new wave of strikes on Iran on Tuesday after reported attacks on three oil tankers in the Strait of Hormuz, while Washington moved to withdraw a concession that had allowed Iran to sell oil internationally, helping drive a sharp rally in crude and reviving energy-led inflation concerns that align with the Fed\u2019s \u2018higher for longer\u2019 stance.<\/p>\n
Rates pricing remained restrictive for non-yielding gold. CME Group\u2019s FedWatch shows markets assigning over an 80% probability to at least one 25 bps hike by year-end, while bond yields rose, with the 10-year Treasury at 4.567% and the two-year at 4.189%. Technically, XAU\/USD stayed within a downward-sloping channel and below the 200-day SMA, with MACD turning positive but RSI still subdued at 44.33. Resistance was flagged near $4,164.35, with a further barrier at the 200-day SMA of $4,491.30; support sat around $3,713.85.<\/p>\n
Given the current situation, we see the recent strength in gold as a selling opportunity rather than the start of a new uptrend. The geopolitical tension in the Strait of Hormuz is boosting the US Dollar’s safe-haven appeal more than gold’s, capping any significant price advances for the metal. Recent data shows Lloyd’s of London just raised its war risk insurance premium for tankers in the region by 35%, indicating the market expects this dollar-positive tension to persist.<\/p>\n
The surge in crude oil prices, with Brent now trading above $115 a barrel for the first time this year, directly fuels the Fed’s “higher for longer” narrative. This is happening just after last week’s Core PCE data showed inflation holding stubbornly at 3.9%, reinforcing fears of renewed price pressures. For this reason, we believe the Federal Reserve will maintain a hawkish stance through the summer.<\/p>\n
Market pricing reflects this growing certainty, with federal funds futures now showing a 65% chance of a 25 basis point rate hike by the September meeting. This expectation is keeping US Treasury yields elevated, with the 10-year note holding firm above 4.5%. This high opportunity cost makes holding non-yielding gold increasingly unattractive for institutional money.<\/p>\n
Therefore, our strategy for the coming weeks is to use any rallies toward the channel resistance at $4,164 as a chance to initiate bearish positions. We find selling out-of-the-money call spreads for the August expiry to be a compelling, risk-defined way to trade this view. This approach profits from both a price decline and time decay if gold remains range-bound below resistance.<\/p>\n
Volatility is also rising, with the Cboe Gold Volatility Index (GVZ) ticking up to 22.5, suggesting traders are bracing for larger price swings. To capitalize on a potential downside move, we are also considering bear put spreads. Buying a $4,000-strike put while simultaneously selling a $3,800-strike put offers a clear way to target a drop towards the lower end of the current price channel.<\/p>\n
For those with existing long positions, hedging against a drop to the structural support near $3,715 is prudent. Buying protective puts with a September expiry can provide insurance against a downside break. We will maintain this cautious to bearish bias until gold can convincingly break and hold above the key 200-day moving average, which remains a distant $4,491.<\/p>\n\n\n\n