Fed Policy, Real Yields, And Gold’s Downward Momentum
We are seeing that gold’s price has almost nothing to do with geopolitical fear and everything to do with the Federal Reserve. The recent May PCE inflation report confirmed this, coming in at a sticky 2.9% year-over-year. This has cemented the market’s belief that the Fed will keep rates higher for longer, overriding any safe-haven bids for the metal. For us, the only chart that matters is US real yields, which are holding firm above 2.1%. This increases the opportunity cost of holding a non-yielding asset like gold. A strong U.S. Dollar Index, currently trading above 105, is creating additional headwinds for the metal.Bearish Outlook And Positioning Strategies
The market has fully embraced the Fed’s tightening signal, with futures now pricing in over a 65% probability of another rate hike by the September meeting. This means any short-term rallies in gold are likely to be sold into. We see the path of least resistance as being firmly to the downside. Given this outlook, we believe a bearish stance using derivatives is appropriate for the coming weeks. Buying put options with strike prices at or below the $4,000 handle offers a clear way to position for a breakdown. Selling call credit spreads above the major resistance at $4,365 could also be an effective strategy to collect premium while maintaining a bearish bias. We are also watching speculator positioning closely, as recent CFTC data shows that hedge funds remain significantly long. A clean break below the critical $4,000 support level could trigger a wave of forced selling from these positions. This long squeeze would likely accelerate the move down into the high-$3,000s.Start trading now — click here to create your real VT Markets account.
