Gold (XAU/USD) slid more than 3% on Wednesday in North American trading, dropping to $3,986 and falling under $4,000 for the first time since November 2025, as broad US Dollar strength outweighed lower US Treasury yields and softer Oil on talk that the Strait of Hormuz reopening could ease inflation pressure. The US Dollar Index (DXY) touched a 13-month peak of 101.80 and was up 0.19% at 101.56, even as the US 10-year T-note yield fell almost nine basis points to 4.410%. West Texas Intermediate (WTI) crude dropped 3.40% to $70.55 per barrel, with negotiations between the US and Iran cited, though comments on inspections of Tehran’s nuclear installations were mixed. Federal Reserve projections showed eight of 19 participants pencilling in a rate rise toward late 2026, while the majority indicated rates would be held; Prime Terminal put the next-meeting odds at 60% for no change versus 40% for a hike, and for December at 82%, with 20 basis points of tightening priced.
Technically, bullion’s downturn accelerated after it broke the 200-day Simple Moving Average (SMA) at $4,473 and failed again near $4,400, while the Relative Strength Index (RSI) moved into oversold territory but stayed above the 20 level. Below $3,950, support is seen at $3,900, then $3,886 from the 28 October 2025 swing high, and next at $3,500, the 22 April 2025 daily high turned support. On the upside, a recovery would need $4,000 and then $4,098, the 23 March daily low. Separately, central banks added 1,136 tonnes of Gold worth around $70 billion in 2022, according to the World Gold Council, and the US data calendar ahead includes Core PCE, first-quarter 2026 GDP, Durable Goods Orders and jobless claims.
Dollar Strength and Fed Expectations Drive Downward Path
Given today’s sharp break below the $4,000 psychological level, we see the path of least resistance for gold as lower in the near term. The primary driver is the US Dollar, which has surged to a 13-month high, making gold more expensive for foreign buyers. This dollar strength is overpowering the usual support gold gets from falling Treasury yields.
Federal Reserve expectations are the key focus, and with the derivatives market pricing in an 82% probability of a rate hike by December, bullish bets on gold face a strong headwind. We believe selling call options with strike prices above the old support level of $4,400 could be a viable strategy to collect premium. This view is supported by the CME’s FedWatch tool, which shows conviction in further tightening remains high despite the drop in oil prices.
Inflation Data and Tactical Positioning
The upcoming Core PCE inflation report is now the most critical data point for the coming weeks. We note that the latest CFTC data showed large speculators have already reduced their net-long gold positions to the lowest point this year. Any inflation reading hotter than the consensus forecast of 3.0% would likely trigger another wave of selling and validate the Fed’s hawkish stance.
With the Relative Strength Index (RSI) now in oversold territory but not yet at extreme lows, there is still room for further downside. We are looking at the $3,900 level as the next logical target, aligning with historical support. Consequently, buying put options with strike prices around $3,950 or $3,900 offers a defined-risk way to position for this continued weakness.
This market environment is reminiscent of the 2022-2023 period, when aggressive Fed tightening and a strong dollar kept a firm lid on gold prices. The easing of tensions in the Strait of Hormuz has temporarily removed a key support for gold, but we must remain cautious. Traders holding short positions might consider buying cheap, out-of-the-money call options as a hedge against a sudden geopolitical flare-up.
