Gold (XAU/USD) slid to about $3,995 in early Asian trade on Thursday, extending losses below the $4,000 mark for the first time since November 2025. The move came as expectations of higher US interest rates and a firmer US Dollar (USD) pressured the non-yielding metal. Attention is now on the US May Personal Consumption Expenditures (PCE) release due later Thursday, a key gauge for assessing the near-term inflation path.
Rate expectations have shifted higher after the Federal Reserve (Fed) struck a hawkish tone at its June meeting, while concerns about inflation linked to the Iran war have also fed into pricing. Markets are pricing a 34.2% probability of a 25-basis-point hike in July, compared with 8.5% a week earlier, and 66.4% for September versus 29.1%, according to the CME FedWatch tool. With PCE data pending, any evidence of easing price pressures could soften the Greenback and, in turn, lend support to the USD-denominated commodity.
Bearish Outlook Amid Hawkish Fed and Geopolitical Risks
With Gold breaking the critical $4,000 support level, our immediate posture should be bearish for the coming weeks. The primary driver is the market’s growing belief in a more aggressive Federal Reserve, making the non-yielding metal less appealing. We see this breakdown as an opportunity to initiate or add to short positions ahead of today’s key inflation data.
The ongoing conflict in Iran, which has pushed Brent crude oil prices back towards $110 a barrel, continues to fuel inflation worries and solidify the Fed’s hawkish stance. This environment punishes assets like Gold that do not offer a yield. Historically, when the Fed aggressively fights inflation, as it did in 2022, Gold consistently underperforms.
Strategic Trades and Positioning in a Strong Dollar Environment
Ahead of the PCE data release, we are looking at buying put options on gold futures expiring in August. We anticipate a core PCE reading coming in around a stubborn 3.8%, which would give the Fed more reason to hike and could push Gold towards the next support level near $3,925. Strike prices around $3,900 are attractive for capturing this expected downward move.
This strategy is reinforced by the strength of the US Dollar, which just saw the Dollar Index (DXY) break above 107.50 for the first time this year. A strong dollar makes gold more expensive for foreign buyers, adding further pressure on its price. We can use derivatives to take long positions on the dollar as a correlated trade.
The rapid shift in rate-hike probabilities, with a September hike now seen as a 66.4% likelihood, mirrors the market sentiment from early 2023 before the last series of hikes. The Fed’s message has been clear, and we should not position for a dovish pivot until inflation shows significant signs of cooling. Therefore, selling call option spreads above $4,050 could also be a viable strategy to collect premium while maintaining a bearish outlook.
