Gold prices are under pressure as the price has retreated to the $4,120 area after a brief recovery. Trade war concerns have eased, and a strong US Dollar has impacted precious metals recently.

Gold’s target was reached at $4,005 but met resistance below previously established support, indicating a possible retest of the $4,000 level. Meetings between the US and China have raised hopes for a deal, affecting market sentiment and the value of precious metals.

Technical Analysis Of Gold Prices

Technically, Gold’s prices appear to have begun a correction after a substantial rally. Indicators such as the 4-hour RSI and USDollar Index suggest further testing of the $4,000 support level.

The $3,945 area is a key level if Gold continues to decline, with the $3,845 mark being another potential target. Resistance levels include $4,160 and $4,185, approaching the high at $4,380.

Globally, central banks are predominant purchasers of Gold, enhancing their reserves for currency stability. Gold often reacts inversely to the US Dollar and is considered a safe asset during market distress. Its price is influenced by geopolitical events and fluctuations in interest rates, often moving in opposition to other major currencies and assets.

Gold Trading Strategies And Market Sentiment

With gold’s bearish momentum building, we see the firm US Dollar as the primary headwind. The Federal Reserve’s decision last week to pause its rate-cutting cycle, prompted by the latest CPI report showing core inflation still lingering at 3.1%, has given the dollar renewed strength. This makes a test of the $4,000 support level for gold almost inevitable in the near term.

For those of us anticipating a breach of this psychological level, buying put options is a direct strategy. We are looking at November expiry puts with a strike price of $3,950 to capitalize on a potential slide towards the next support zone. The technical setup, including the double top pattern we saw form earlier this month, supports this bearish outlook.

However, we must not ignore the significant buying that has historically emerged on major dips. Looking back at the record-breaking central bank purchases of 2022 and 2023, this trend has continued, with the People’s Bank of China alone adding over 200 tonnes so far this year. This consistent demand suggests that any drop below $4,000 may be short-lived, creating a floor under the market.

Given this strong underlying support, selling cash-secured puts or structuring a bull put spread with a short strike at or below $4,000 could be an effective strategy to collect premium. This approach benefits if gold stays above the key support level through expiration. The elevated volatility from gold’s recent 35% rally makes these premiums particularly attractive right now.

We also remember how quickly sentiment shifted during the US-China trade disputes back in 2018 and 2019. While hopes for a deal are currently pressuring gold, any sign of trouble in the upcoming talks could send prices soaring. Therefore, holding some longer-dated, out-of-the-money call options remains a prudent hedge against a sudden geopolitical reversal.

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