Gold fell about 0.50% on Monday, with XAU\/USD trading at $4,153, as firm US yields and a steady dollar limited a post-jobs data bounce even as markets pared expectations for a more hawkish Federal Reserve. The ISM Services PMI eased to 54 from 54.5; however, the Employment Index firmed and the prices paid gauge slowed to 67.7 from 71.3. Rate pricing shifted, with an 88% probability of a December hike and 22 basis points of tightening implied, while July is priced for no change with 77% odds, according to Prime Terminal data.<\/p>\n
The US Dollar Index was up 0.03% at 100.90 and the 10-year Treasury yield held at 4.451%, both weighing on non-yielding bullion. Attention is also on US-Iran talks due to resume next Saturday in Islamabad, and the calendar includes the Fed minutes, Initial Jobless Claims for the week ending 4 July, and the 14 July CPI release. Technically, resistance is seen around $4,200-$4,225, with a daily-chart death cross in place; downside levels include $4,100, $4,000 and the YTD low at $3,941, while upside markers include $4,250 and $4,300, then the 50-day SMA at $4,391, the 200-day SMA at $4,488 and $4,500. Central banks bought 1,136 tonnes of gold worth about $70 billion in 2022, per the World Gold Council.<\/p>\n
We see gold’s recent rebound being capped by the firmness in US Treasury yields and the dollar. Despite a softer-than-expected jobs report last week, the market is signaling that this isn’t enough to guarantee a sustained move higher for the precious metal. For now, the path of least resistance appears to be downward as long as gold stays below the $4,200 level.<\/p>\n
All eyes should now be on the upcoming Consumer Price Index (CPI) report scheduled for July 14. This data will be the most critical factor for the Federal Reserve’s next decision, especially since core inflation has proven stubborn, with the Bureau of Labor Statistics recently reporting a 3.6% year-over-year figure. A hotter-than-expected number would likely solidify bets for a rate hike later this year, putting significant pressure on gold.<\/p>\n
Given the bearish technical setup, including the recent ‘death-cross’ formation, we believe traders should consider strategies that benefit from sideways or downward price action in the immediate term. Buying put options with a strike near $4,100 could provide a way to profit from a move lower while clearly defining risk. This is a prudent approach ahead of what could be a very volatile data release.<\/p>\n
However, we must also be prepared for a sharp rally if inflation comes in surprisingly cool. Historically, in data-dependent environments like we saw in 2023, a CPI miss of just 0.2% has triggered sharp, multi-day rallies in gold. Purchasing out-of-the-money call options could be a cost-effective way to position for this potential upside surprise.<\/p>\n
We expect implied volatility on gold options, particularly those traded on the COMEX, to climb steadily as we approach the CPI release date. Recent Commitment of Traders reports have shown that managed money funds have been reducing their net long exposure, indicating a cautious stance among large speculators. This suggests the market is bracing for a significant price move, and traders should adjust their positions accordingly.<\/p>\n\n\n\n