Gold eased from session highs on Monday but held its bullish opening gap, struggling near $4,100 after rebounding from around $4,025 last week. Prices rose more than 1% at one point as the US Dollar and US Treasury yields softened, while a two-night pause in strikes between the US and Iran reduced demand for havens. Oil fell 5%, which helped cool inflation concerns and in turn tempered expectations for near-term Federal Reserve tightening.
Traders stayed cautious ahead of the Fed meeting starting Tuesday, with a decision due on Wednesday, and as they weighed whether the lull since Friday evening—following nearly two weeks of strikes—will hold. Markets price roughly a 33% chance of a Fed rate hike, up from 12% 10 days ago, according to CME Group’s FedWatch Tool. On the daily chart, XAU/USD was at $4,090.11, sitting above the 21-day SMA at $4,069.60 but below the 50-day SMA near $4,221.95; the 100-day and 200-day SMAs around $4,469.47 and $4,493.66 add overhead pressure. The RSI (14) is near 48, and a Bear Cross was confirmed on July 22.
Volatility Risks Ahead of Fed Decision
As we watch gold hover around $4,090 ahead of this week’s crucial Federal Reserve decision, we advise derivative traders to prepare for heightened volatility. The market is currently pricing in a 33% chance of a rate hike, a sharp jump from just 12% ten days ago. To navigate this, we should consider using short-term option straddles to capitalize on the inevitable price swing.
While the brief pause in US-Iran tensions has cooled oil prices by 5%, geopolitical risk remains highly unpredictable. Historically, major geopolitical shocks have caused gold to spike by 3% to 5% in a single session, much like the safe-haven rallies seen during previous Middle East conflicts. We recommend keeping a close eye on crude oil futures, as any sudden rebound there will likely drag gold higher with it.
Technical Outlook and Trading Strategies
Looking at the charts, we cannot ignore the “Bear Cross” that was confirmed on July 22 when the 100-day moving average fell below the 200-day average. This indicator historically signals longer-term downward momentum, suggesting that any rallies toward the 50-day moving average of $4,222 might be short-lived. We suggest scaling into limited-risk bear put spreads to profit from this technical weakness.
On the downside, a drop below the key 21-day moving average of $4,069 could trigger a wave of automated selling. If the Fed surprises the market with a rate hike on Wednesday, we expect this support level to break quickly. Traders should prepare for this scenario by setting stop-loss orders just below the $4,069 mark.
