Gold weakened early in the week as rising US Treasury yields and firmer oil prices reinforced expectations of tighter Federal Reserve policy, following renewed Middle East tensions that included US attacks on three Iran-linked oil tankers and Iran targeting three US-affiliated vessels plus three tankers in the Strait of Hormuz. After falling more than 1% on Tuesday, bullion recovered on Wednesday but was restrained when the US Treasury Department said it would buy up to $6bn of 10- to 20-year debt, helping lift the 10-year yield to its highest since November 2023. Thursday’s data kept pressure on: headline PPI rose 5.4% year on year in August versus 4.8% in July and a 5.3% consensus, while WTI moved above $100 a barrel for the first time since late May; CME FedWatch then put the odds of a 25 bps September hike at 70%, with the 10-year yield pushing towards 5% and gold slipping back below $4,400.
Attention now turns to the Fed’s two-day meeting on Wednesday, alongside the SEP and dot-plot; June projections pointed to a 25 bps rise in 2026, then 25 bps cuts in 2027 and 2028. Gold steadied into the weekend as CPI was unchanged at 3.4% in August and core CPI eased to 2.4% from 2.5%, while technical levels include resistance at $4,510-$4,535 and $4,675-$4,700, with support at $4,330-$4,295, $4,270 and $4,200; RSI is near 50 and price remains above the 100-day SMA. Central banks added 1,136 tonnes of gold worth about $70bn in 2022, according to the World Gold Council.
Derivative Trading Strategies Ahead of the Fed Meeting
We recommend that derivative traders brace for heightened volatility and avoid holding large, unhedged directional positions ahead of next week’s crucial Federal Reserve meeting. With the market pricing in a 70% probability of a 25-basis-point rate hike, sudden price swings are highly likely. Utilizing options strategies like long straddles could help us capitalize on these sharp movements regardless of which way the market breaks.
We must closely monitor the 10-year US Treasury yield, which recently surged to 4.96% following stronger-than-expected PPI inflation data of 5.4% for August. Historically, when yields approach the 5% threshold, they exert heavy pressure on non-yielding assets like gold, which is currently struggling to hold the $4,400 mark. If the Fed delivers a hawkish projection for 2027, we expect the US dollar to strengthen further, potentially dragging gold down toward key support levels.
Key Technical Levels and Long-Term Opportunities
For options and futures traders, we suggest setting key execution triggers around the established support and resistance bands. On the downside, we should watch the $4,330 to $4,295 range, while on the upside, a sustained break above the $4,510 to $4,535 resistance zone could signal a strong bullish continuation. Leveraged traders should tighten their stop-losses to protect capital against sudden spikes during the upcoming Fed press conference.
Despite the immediate downside risks, we believe the long-term fundamental backdrop for gold remains highly constructive. World Gold Council data shows that global central bank buying has consistently exceeded 1,000 tonnes annually in recent years, establishing a historic floor for the precious metal. Therefore, we should view any post-Fed dip toward the $4,200 level as a prime opportunity to accumulate longer-dated call options.
