Gold (XAU\/USD) slipped below $4,650 in Asian trading on Wednesday after volatile moves the prior day, as the US Dollar regained ground ahead of the US Personal Consumption Expenditures (PCE) Price Index. Markets are leaning towards a policy hold at the September 15\u201316 FOMC meeting, while the focus also turns to Federal Reserve Chair Kevin Warsh\u2019s remarks at the Jackson Hole Symposium on Friday. US Treasury buybacks have helped pull bond yields lower, with officials indicating the Treasury could use its near $1 trillion General Account to fund increased buybacks of longer-dated bonds. At the same time, easing tensions in the Middle East pushed crude to a nearly two-week low, moderating inflation concerns and pressuring yields, which may limit the Dollar\u2019s upside and offer some support to gold.<\/p>\n
Technically, the break above $4,500 cleared a cluster of the 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the March\u2013June drop, but the rally has struggled above the 50% level. Momentum looks stretched, with the Relative Strength Index (14) near 72, even as the MACD (12, 26, 9) remains positive; further upside may require a push above $4,700. Above that, targets sit at the 61.8% level of $4,856, then $5,104 at 78.6%, and the cycle high area around $5,421; support lies at the 200-day SMA near $4,522 and $4,508, then $4,292 at 23.6% and $3,944.<\/p>\n
We suggest derivative traders hold off on aggressive long positions in gold (XAU\/USD) until we get clear signals from Friday’s Jackson Hole address and the upcoming PCE inflation data. Historically, major policy hints dropped at Jackson Hole have triggered gold price swings of over 3% in the days that follow. Given that gold is currently trading just below $4,650, we recommend employing options straddles to capture this imminent volatility without picking a direction yet.<\/p>\n
We are keeping a close eye on US Treasury yields, which are falling as the Treasury taps its nearly $1 trillion General Account for bond buybacks. This massive liquidity injection is pulling yields lower, a trend that historically makes non-yielding gold much more attractive to institutional investors. If yields continue this downward slide, we expect a highly supportive floor to establish for near-term gold futures.<\/p>\n
At the same time, easing shipping tensions in the Middle East have pushed crude oil prices to a two-week low, which helps cool down global inflation expectations. With lower inflation pressures, the Federal Reserve is highly likely to keep interest rates on hold at the upcoming September 15\u201316 meeting. We believe traders should trim highly leveraged bullish bets on gold, as a pause in rate hikes is already partially priced into the market.<\/p>\n
On the charts, gold\u2019s Relative Strength Index is flashing overbought signals at 72, suggesting that the recent upward momentum might soon experience a temporary pullback. We advise buying call options only if we see a sustained daily close above the crucial $4,700 resistance level, which could quickly open the door to $4,856. For downside protection, we should set tight stop-losses near the 200-day Simple Moving Average at $4,522 to manage risk effectively.<\/p>\n\n\n\n