Bearish Outlook Driven By Interest Rates and Dollar Strength
Given the Federal Reserve’s commitment to keeping interest rates higher for longer, we see the current weakness in gold as a continuing trend. The strong US Dollar and rising Treasury yields are creating significant headwinds for the non-yielding metal. We are therefore positioning for further declines in gold prices over the coming weeks. Market expectations are solidifying around this hawkish view, as the latest CME FedWatch Tool data from this morning shows a nearly 75% probability of a rate hike at the September meeting. The US 2-year Treasury yield is holding firm above 4.95%, a level not seen since late 2025, which makes holding a zero-yield asset like gold less attractive. This sustained pressure from interest rates is a core part of our bearish thesis.Positioning For a Further Slide in Gold Prices
To act on this, we are looking at buying put options on gold futures or related ETFs, which offers a defined-risk way to profit from a downward move. We are targeting strike prices below the key $4,100 level, with the expectation that prices could test the year-to-date low near $4,023. Any break below that level would open the door for a much deeper selloff. The major catalyst to watch will be next week’s Core Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation gauge. The last Core PCE reading for April came in at an annualized 3.1%, still stubbornly above the Fed’s 2% target. Another strong number would likely accelerate gold’s decline and validate our bearish positions. This environment is reminiscent of the 2022-2023 tightening cycle, where gold initially struggled as the Fed aggressively raised rates. The metal only found a durable bottom once the market had fully priced in the peak of that rate cycle. We could be seeing a repeat of that pattern now, suggesting more downside before a long-term buying opportunity emerges.Start trading now — click here to create your real VT Markets account.
