Gold’s value decreased as optimism around US-China trade discussions prompted a demand for riskier assets, leading to a weaker start to the week for XAU/USD. However, expectations for further Federal Reserve interest rate cuts and a slight US Dollar decline could help limit gold’s losses. Analysts expect two more rate cuts this year, reinforced by recent consumer inflation figures, potentially depressing the US Dollar and stabilising gold prices.

Global market sentiments were uplifted as major Chinese and US officials agreed on a trade framework, removing threats of high tariffs. This increased market risk appetite, pushing stocks up and applying downward pressure on gold. The market is now awaiting the Federal Open Market Committee monetary policy meeting for future direction. Furthermore, geopolitical tensions, particularly involving Russia’s recent actions, could influence the safe-haven appeal of gold.

Technical Analysis Of Gold

Technically, gold is currently navigating critical Fibonacci retracement levels, with prices hovering around $4,000. Price movements are constrained, with resistance anticipated near the $4,109-$4,110 region. A breakout could lead gold towards the $4,200 mark and beyond. Central banks remain significant gold buyers, adding 1,136 tonnes to reserves in 2022. Gold’s price dynamics are closely tied to US Dollar movements, tending to rise with a weaker Dollar.

We are seeing a familiar push-and-pull in gold, with prices softening as traders embrace risk. Recent progress in US-China tech trade talks in Geneva has lifted global equities, much like the optimism we saw surrounding similar summit meetings back in the early 2020s. This reduces the immediate need for safe-haven assets and puts gentle pressure on the metal.

However, any significant drop in gold seems limited due to shifting expectations for Federal Reserve policy. The CME FedWatch tool now shows a greater than 60% probability of a rate cut by March 2026, a notable shift following last week’s cooler-than-expected Personal Consumption Expenditures (PCE) report of 2.9%. This sentiment is capping the US Dollar’s strength and providing a floor for gold prices.

Geopolitical Risks And Market Strategies

Underlying geopolitical risks, including the long-standing conflict in Ukraine and renewed tensions in the Strait of Hormuz, also discourage aggressive bearish positions. We must also consider the persistent demand from central banks, which have been significant buyers since they added a record 1,082 tonnes in 2022. This structural demand provides a strong long-term support level for the metal.

Given this balanced outlook, derivative traders should consider strategies that profit from range-bound price action or a sudden spike in volatility. Selling a short strangle by writing out-of-the-money puts near the $3,950 level and calls around $4,150 could be an option for those expecting consolidation ahead of the November FOMC meeting. This strategy collects premium while defining a clear price range.

Alternatively, for those who believe the upcoming FOMC meeting will provide a decisive catalyst, buying a long straddle could be more appropriate. This position would profit from a significant price move in either direction, whether it’s a breakdown below the critical $4,000 support or a rally past the $4,160 resistance. The key will be timing the entry to manage the cost of premium decay in the coming weeks.

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