Gold prices have fallen below $3,350 due to rising US yields and a stronger US Dollar. Improved risk appetite, driven by US-China and EU-US trade talks, has reduced demand for gold, putting pressure on XAU/USD to stay above triangle support.
Gold is currently trading under $3,330, down over 1%, pressured by higher US Treasury yields. The recent US Durable Goods Orders report showed a 9.3% decline in June, less severe than expected but a notable drop from May’s 16.5% increase.
Impact Of Easing Trade Tensions On Gold
Easing global trade tensions have led to a pullback in gold prices, as tariff negotiations with the European Union progress. Upcoming US-China trade talks are poised to impact risk sentiment and gold demand, with potential tariff adjustments influencing market dynamics.
US Initial Jobless Claims have decreased, indicating a robust labour market, which supports higher yields and strengthens the US Dollar. Markets are anticipating a 62.3% chance of a 25-basis-point Fed rate cut in September, although caution remains due to unresolved trade issues.
Gold’s price is under threat as it nears breaking an ascending triangle support level. If key support levels are breached, a further decline might be seen, though the overarching uptrend could persist if these levels are maintained.
Given the current pressure on gold, which recently dipped below $2,330, we believe traders should consider bearish positions. The sustained strength in the US Dollar, with the DXY index trading above 105, alongside high US 10-year Treasury yields hovering around 4.4%, creates a difficult environment for the metal. We would look at buying put options to profit from a potential drop below the key technical support level.
The labor market’s surprising strength, evidenced by the recent addition of 272,000 jobs in the Non-Farm Payroll report, makes an immediate case for a stronger dollar. This robust economic data reduces the likelihood of imminent and aggressive rate cuts from the central bank. This lessens the appeal of holding a non-yielding asset like gold.
Investment Strategies Amid Market Dynamics
Market expectations have adjusted accordingly, with the CME FedWatch Tool now showing the probability for a rate cut in September has fallen to around 50%. This is a significant shift that points to interest rates remaining higher for longer, which historically puts a cap on gold’s price. Therefore, selling out-of-the-money call options or establishing call credit spreads could be a prudent strategy to collect premium while betting that prices will not rally significantly.
The easing of global trade tensions is another factor that diminishes the metal’s role as a safe haven. Progress in tariff negotiations removes a layer of fear from the market, encouraging investment in riskier assets over bullion. We see this improved risk appetite as a continuing trend that will weigh on prices in the coming weeks.
We are watching the ascending triangle support very closely, as a break below this level could accelerate selling pressure. Historically, periods combining a strong dollar and restrictive monetary policy, like the one we are in now, have not been kind to precious metals. A failure to hold the current technical formation would signal a deeper correction is likely underway.
