Gold (XAU/USD) recovered from an early dip in Asia to trade around $3,983-$3,982, extending Friday’s rebound from a monthly low as a softer US Dollar provided support. The backdrop remains mixed. Escalating Middle East tensions are feeding a geopolitical risk premium, but expectations for tighter US monetary policy are underpinning the dollar and limiting scope for a sustained advance in the non-yielding metal. With no major US data due on Monday, attention turns to any comments from FOMC members and fresh geopolitical headlines for near-term direction.
The US said it carried out a ninth consecutive night of strikes against Iran on Sunday, while US Central Command said the operation targets Iranian capabilities used to attack shipping in the Strait of Hormuz. Iran responded with ballistic missiles and one-way attack drones, and Bahrain, Jordan, Kuwait and Iraq reported a new wave of attacks. The IRGC has also sought to restrict vessel traffic, lifting crude to its highest level since June 12 and adding to inflation concerns, while markets price the risk of a Fed rate hike in 2026. Technically, gold remains in a descending channel and below the 200-day SMA at $4,495.79, with resistance near $4,056.51; MACD is marginally positive but RSI is below 50, while support sits near $3,662.99.
Derivative Trader Caution Amid Fragile Gold Rebound
We suggest derivative traders remain highly cautious in the coming weeks despite gold’s fragile recovery toward the $3,983 level. While a weaker US Dollar has offered some short-term relief, the overall technical setup for XAU/USD remains heavily tilted to the downside. Historically, minor relief rallies within a broader bearish channel tend to trap overeager buyers before the dominant downward trend resumes.
Geopolitical Premium, Inflation, and Trading Strategy
We believe the massive geopolitical risk premium from the escalating Middle East crisis and shipping disruptions in the Strait of Hormuz will continue to spark sharp, short-term volatility. However, these tensions are pushing crude oil prices higher, which historically keeps inflation sticky and forces central banks to raise interest rates. During the 2022 inflation surge, aggressive central bank rate hikes dragged gold down by over 20% from its March peak despite intense geopolitical conflicts, proving that high interest rates often override safe-haven demand.
For options and futures traders, we recommend focusing on selling near-term rallies as long as gold stays below the key resistance level of $4,056. The precious metal is currently trading well below its 200-day Simple Moving Average of $4,495, which confirms that sellers are firmly in control of the broader market. Call option sellers can take advantage of the current spike in implied volatility, which has been driven higher by the ongoing military strikes.
We anticipate that if the upper boundary of the descending channel holds, the price of gold could slide back toward the major support zone near $3,662. With the Relative Strength Index (RSI) still lingering in negative territory below 50, momentum does not support a sustained upside breakout. Traders should watch for a decisive break of either channel boundary before committing to large, long-term trend-following positions.
