Gold edged up on Monday but remained pinned near $4,450, struggling to recover from last week’s slide of more than 4% that left it near the $4,400 area. The move followed firmer expectations of tighter US monetary policy and an escalation in US–Iran hostilities that supported the US Dollar and pressured bullion. After Federal Reserve Chair Kevin Warsh delivered a hawkish message at Jackson Hole, markets repriced the chance of a September rate rise, with the CME FedWatch Tool showing odds at 61% versus 36% a day earlier, while references to returning inflation to the 2% target reinforced the pause-for-longer narrative.
Fresh geopolitical tension added to the defensive tone. The US struck Iran’s Larak island, where the Islamic Revolutionary Guard Corps (IRGC) was alleged to be preparing missiles to lay sea mines in the Strait of Hormuz, and Tehran responded by targeting US airbases in Jordan and the United Arab Emirates. Technically, XAU/USD reversed sharply on Friday and fell below the 200-day simple moving average (SMA) at $4,528; the Relative Strength Index (RSI) was 54.36 and the MACD slipped into negative territory. Support levels sit near $4,400, then $4,310 and $4,225, while resistance is seen at $4,528, $4,565 and around $4,700. Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest annual purchase on record.
Gold Technical Breakdown and Bearish Trading Opportunities
With gold breaking below the crucial 200-day Simple Moving Average of $4,528, we believe derivative traders should prepare for further downside in the coming weeks. The sudden jump in September rate hike expectations to 61% has boosted the US Dollar, making non-yielding bullion less attractive. Historically, similar breaks below the 200-day moving average, such as the market corrections seen in late 2022, have triggered extended selling pressure of 10% or more.
To capitalize on this bearish shift, we recommend buying out-of-the-money put options with an expiration date set for late September. Traders can target the next major support levels at $4,310 and $4,225 as potential profit-taking zones. Utilizing a bear put spread is also a highly effective way to limit premium costs while positioning for a steady decline toward these lower targets.
Risk Management and Market Considerations
However, we must remain cautious because the sudden military clashes between the US and Iran could spark safe-haven buying at any moment. To hedge against sudden price spikes, short futures traders should consider buying protective call options just above the $4,528 resistance level. This balanced strategy protects our portfolios from unlimited losses if geopolitical tensions in the Middle East suddenly escalate.
Current market data shows that rising US Treasury yields are keeping pressure on precious metals, as higher yields increase the opportunity cost of holding gold. We should closely watch the upcoming US jobs and inflation data, as any signs of economic strength will likely lock in the Fed’s rate hike and push gold down to our $4,300 target.
