Gold recovered above $4,020 in early European trading on Monday as the US Dollar softened and markets weighed the prospect of a political push to curb funding for the Iran conflict. Democrats, having secured majorities in both the House and Senate, are opposing President Donald Trump’s proposed $1.5 trillion defence budget, with discussions revolving around approval closer to $1 trillion. Separately, Trump is due to meet Qatar’s Prime Minister at 17:00 GMT to discuss a new ceasefire and the resumption of nuclear talks.
Support for bullion was tempered by stronger US labour data, which lifted expectations of higher-for-longer interest rates. The US added 165,000 jobs in October versus 60,000 in September, beating the 65,000 estimate, while the unemployment rate edged down to 4.1% from 4.2%. Rate pricing shifted as the implied odds of a December hike rose to 79.6% from 72.8%, according to CME FedWatch. Gold earlier touched a two-week high above $4,140 before stalling; spot remains below the 100-day SMA, with RSI at 50.30, resistance at $4,200 and $4,225, and support around $4,095, $4,065 and $3,900.
Derivative Strategy Amid Conflicting Drivers
We recommend that derivative traders approach gold contracts with a dynamic hedging strategy over the coming weeks as conflicting market forces build up. Geopolitical developments, including potential defense budget caps near $1 trillion and incoming ceasefire discussions, are creating safe-haven demand that collides directly with hawkish monetary policy expectations. Traders should prepare for sharp, short-term price swings rather than committing to a single directional bias.
The October US nonfarm payrolls surging by 165,000 alongside a drop in unemployment to 4.1% has significantly altered rate expectations. Market pricing now reflects nearly an 80% chance of a Federal Reserve rate hike in December, which increases the holding cost of non-yielding assets. Derivative traders using options should consider defining their downside risk or setting up calendar spreads to manage the impact of elevated yields on long positions.
Equity Market Risks and Technical Outlook
We must also watch broader financial markets closely, as weakness across technology and semiconductor shares poses an underrated threat to gold’s momentum. During past equity sell-offs, such as the liquidity crunch in early 2020 when gold temporarily dropped nearly 12%, investors frequently sold gold positions to raise immediate cash. If tech-driven deleveraging accelerates, we could see quick margin-call liquidations pull gold back toward key support around $3,900.
From a technical perspective, gold derivatives face severe overhead resistance near the 100-day moving average of $4,200 and the upper Bollinger band around $4,225. With the Relative Strength Index hovering right near the neutral 50 line, momentum lacks the clear strength needed for a sustained breakout without a major catalyst. We suggest keeping position sizing conservative and placing tight stops near the $4,065 support level while waiting for upcoming CPI data to clarify the monetary trend.
