Gold rose 0.81% on Tuesday, with XAU/USD trading at $4,344 after touching a daily low of $4,306, as a US–Iran truce due to be signed on Friday coincided with a two-day oil rout that eased inflation pressure and weighed on the dollar. The Federal Reserve opened a two-day meeting expected to leave rates unchanged and publish its Summary of Economic Projections, before new chair Kevin Warsh delivers his first post-decision press conference. Money markets priced an 80% probability of no change against 20% odds of a hike, according to Prime Terminal, while softer US data added to the tone as ADP’s four-week average showed hiring of 25.5K, down from 29K previously.
Falling yields reinforced bullion’s bid, with the US 10-year down nearly 5 bps to 4.484% and the Dollar Index off 0.12% at 99.54. Elsewhere, the RBA held rates but signalled further tightening if inflation picks up, and the BoJ lifted rates 25 bps to 1% without setting a path, after Governor Kazuo Ueda was hospitalised. Technically, resistance is seen around $4,400 near the 20-day SMA, then the 200-day SMA at $4,458, $4,500 and the 50-day SMA at $4,571; support sits at $4,300, then $4,250, $4,200 and $4,023.
—
Impact of Oil Prices and Central Bank Policy on Gold
The recent drop in oil prices, following the US-Iran agreement, is a significant event for us. This has softened inflation expectations, making it less likely the Federal Reserve will raise interest rates in the near term. Consequently, this environment is becoming increasingly favorable for non-yielding assets like gold.
We are now focused on the Federal Reserve’s meeting, particularly new Chair Kevin Warsh’s first press conference. The market is pricing in a dovish stance, but any surprisingly hawkish language could cause a rapid reversal. We need to be positioned for the expected outcome while being prepared for a surprise.
Recent data supports our view that inflation is easing, with the latest CPI report showing a moderation to an annualized 2.8%. This, combined with WTI crude oil prices falling from over $85 to below $78 a barrel in the past month, strengthens the case for the Fed to pause. The CME FedWatch Tool reflects this, showing that traders are currently pricing in less than a 25% probability of a rate hike at the next meeting.
—
Options Strategies and Technical Outlook
To capitalize on potential upside in gold, we are looking at buying call options. This strategy allows us to benefit if gold breaks through its key resistance near $4,400, while clearly defining our maximum risk. We are considering options with expirations in late July or August to allow time for this trend to develop post-Fed meeting.
However, we must also manage the risks of a policy surprise, especially with other central banks like the BoJ turning more hawkish. To hedge against an unexpectedly firm stance from the Fed, we could purchase puts on bond ETFs. A hawkish surprise would likely cause Treasury yields to spike and bond prices to fall, making these puts profitable and offsetting some losses on our primary gold positions.
The technical picture shows a clear battleground at the $4,400 level, which coincides with the 20-day moving average. A decisive move above this area could trigger further buying and push gold towards the next resistance at the 200-day moving average around $4,458. Our strategy is built around this potential breakout.
In the coming weeks, we will closely monitor US economic data, particularly the upcoming Retail Sales and Initial Jobless Claims figures. Weakness in these reports would further cement the view that the Fed will remain on hold, providing continued support for higher gold prices. Any sign of renewed economic strength could quickly shift this sentiment.
