Gold traded near $4,100 in early European dealings, attempting to extend a modest rebound after hitting its lowest level since November 2025. The US Dollar stayed soft after core US CPI eased inflation fears, giving bullion some support, though expectations for a hawkish Federal Reserve and renewed US-Iran hostilities limited upside and offered the Greenback a firmer backdrop. Attention shifts to the US Producer Price Index later today for further direction on Fed policy, while Middle East developments are expected to keep price action volatile.
On the data, core CPI slowed to 0.2% month-on-month in May from 0.4%, and the annual rate printed at 2.9%. Headline CPI accelerated to 4.2% year-on-year from 3.8% in April, driven by a 23.5% rise in energy costs. Iran said it had closed the Strait of Hormuz after fresh US strikes, helping crude oil recover from a two-month low and stoking inflation concerns; markets are pricing a 70% chance of a Fed rate hike this year. Technically, a break below the 200-day SMA and a falling channel keeps the bias bearish, with levels cited at $4,257.39, $4,446.37, and $4,572.06, while MACD remains negative and RSI is oversold.
Hawkish Fed, Energy Costs, and Geopolitical Risks Pressure Gold
We are viewing the current bounce in gold as a selling opportunity rather than a true reversal. The softer core CPI is providing temporary relief, but the larger forces of a hawkish Federal Reserve and rising energy costs are creating significant headwinds for the metal. The market is overwhelmingly focused on the Fed’s reaction to inflation, which makes gold less attractive.
The conflict in the Middle East is adding fuel to the fire by driving up crude oil prices. The closure of the Strait of Hormuz, a chokepoint for about 20% of global oil consumption, is a serious inflationary threat that will likely keep the Fed on a hawkish path. While geopolitical tension can sometimes trigger a flight to safety in gold, the resulting inflation concerns are strengthening the US Dollar and weighing more heavily on the precious metal.
We’ve seen this dynamic before, particularly during the aggressive rate-hiking cycle of 2022-2023 when the Fed raised rates over 5% to combat inflation. During that period, gold struggled significantly as higher interest rates increased the opportunity cost of holding the non-yielding asset. With markets now pricing in a 70% probability of another rate hike this year, we anticipate history will repeat itself.
Trading Strategy: Bearish Bias and Derivatives Opportunities
Given this outlook, we believe derivative traders should consider buying put options to bet on a further decline. This strategy allows us to capitalize on the downside while capping our potential losses if a sudden headline causes a sharp, unexpected rally. The deeply negative technical indicators support this bearish stance, even with the RSI suggesting the recent fall was overdone.
Any strength towards the $4,250 resistance level should be seen as a chance to initiate new short positions. Selling call spreads could also be an effective strategy to generate income and profit from our view that gold’s upside is severely limited. We will be watching the upcoming US Producer Price Index (PPI) data closely, as a high number would reinforce our bearish conviction.
