Gold hovered below $4,000 on Friday, trading near $3,992 after an intraday low of $3,959, the weakest level since 1 July, and it remained on course for a second straight weekly decline. The move came as the US dollar recovered from earlier softness linked to cooler US inflation data, capping bullion’s upside. The US Dollar Index (DXY) was around 100.76 after touching 100.35 on Wednesday, a more than three-week low, while markets priced about a 73% probability of a Federal Reserve rate rise by December.
Geopolitical strain added to the macro backdrop, with the US conducting strikes against Iran for a sixth consecutive night and Tehran launching missile and drone attacks on US facilities across the Middle East; Iran’s Revolutionary Guard Corps said no oil or gas exports would pass through the Strait of Hormuz while US attacks continue. In US data, the University of Michigan sentiment gauge rose to 54.4 in July from 49.5 in June, above a 51 forecast; one-year inflation expectations eased to 4.2% from 4.6% and the five-year measure held at 3.3%. Technically, XAU/USD stayed below the 20-day SMA at $4,072, with RSI at 39.12 and ADX near 39.77; resistance was flagged at $4,072, $4,199–$4,200 and $4,400, while support sat near $3,945 and $3,800.
Trading Strategies Amid Bearish Momentum
We advise derivative traders to lean into short positions on gold (XAU/USD) in the coming weeks as the precious metal struggles below the critical $4,000 threshold. With the technical RSI sitting at a weak 39.12, we expect sellers to push prices down toward the lower Bollinger band at $3,945. If this immediate support level breaks, we could see a rapid slide toward the major horizontal floor at $3,800.
To capitalize on this downward momentum, we recommend buying near-the-money put options with expiration dates in late August. This strategy protects capital from short-term volatility while capturing the broader bearish trend driven by a stronger US Dollar. Alternatively, traders can set stop-loss orders just above the $4,072 resistance mark to manage risk on direct short positions.
Portfolio Hedging With Energy and Currency Instruments
Additionally, we should look to hedge our portfolios by taking long positions on Brent crude oil and the US Dollar Index (DXY), which is currently holding firm at 100.76. Because the Strait of Hormuz handles roughly 20 million barrels of oil per day, the ongoing military tensions between the US and Iran will likely keep energy prices high and fuel inflation. Historically, prolonged threats to this vital shipping lane have pushed oil prices up by 10% to 15% in a matter of weeks, which will keep the Federal Reserve hawkish and further depress gold.
