Gold rose to a two-week high on Wednesday, with XAU/USD trading near $4,122, up 1.1%, after buying emerged around $4,000. The broader backdrop was little changed as the US carried out an 11th consecutive night of strikes on Iran, while Tehran launched further attacks affecting Bahrain, Kuwait and Jordan. Disruption to energy flows through the Strait of Hormuz lifted crude and fed inflation concerns, with WTI at about $86.50, its highest since June 11. That keeps attention on the Federal Reserve’s 2% inflation target and the prospect of tighter policy, while a firm USD and elevated US Treasury yields continue to weigh on the non-yielding metal.
Markets are pivoting to the July 28-29 FOMC meeting, with the CME FedWatch Tool putting the probability of a July hike at 28%, up from 10% a week earlier, and the odds of a September hike at 69%. Technically, gold remains below the 200-day SMA at $4,496 and the 100-day SMA at $4,501, but is supported by the 21-day SMA at $4,065. The RSI is 50 and MACD has edged positive, with resistance around $4,200 and $4,400; support is seen at $4,065 and then $4,000.
Derivatives Strategies for Range-Bound Gold Markets
We recommend that derivative traders prepare for range-bound trading in gold over the next two weeks as we approach the July 28-29 FOMC meeting. With gold currently trading around $4,122, we should look to utilize options strategies like iron condors to capitalize on consolidation between $4,000 and $4,200. This cautious stance is supported by the daily Relative Strength Index sitting at a completely neutral 50, indicating a temporary pause in market momentum.
However, we must closely monitor the escalating conflict in the Middle East and WTI crude oil, which has surged to a multi-week high of $86.50. Historically, a 10% sustained increase in crude prices can boost headline inflation by up to 0.4 percentage points, which would keep central banks highly aggressive. To hedge against this energy-driven volatility, we advise holding long call options on crude oil futures alongside our gold positions.
Inflation Risks and Defensive Positioning in Gold
This inflation threat has already pushed the probability of a September Fed rate hike to 69% according to the latest exchange data. Because higher interest rates increase the opportunity cost of holding non-yielding metals, we believe gold’s upside will remain capped below its 100-day moving average of $4,501. Therefore, we should establish short positions using bear call spreads on gold if prices approach the immediate $4,200 resistance level.
On the downside, we must protect our capital by placing tight stop-losses just below the 21-day moving average at $4,065. A break below the critical $4,000 psychological floor could spark a rapid technical sell-off as bargain hunters exit the market. For risk-averse portfolios, buying out-of-the-money protective puts on gold ahead of next week’s Fed meeting is a highly effective defensive move.
