Gold traded lower on Tuesday, near $4,482 after an intraday low of $4,464, its weakest level since 30 March. It has fallen almost 15% since the war began, despite ongoing uncertainty around US-Iran talks.
Donald Trump said he paused an immediate planned attack on Iran after Gulf leaders asked for talks to continue. He also said the US military should stay ready for a “full, large-scale assault” if no acceptable agreement is reached.
Market Focus Shifts To Rates And Oil
Markets are focusing on higher oil prices and inflation risks linked to disruption around the Strait of Hormuz. CME FedWatch shows nearly a 50% chance of at least one 25 basis point Fed rate rise by year-end, up from 35% a week ago.
Bond selling has lifted yields, with the US 10-year Treasury near 4.60%, close to a one-year high. Higher yields raise the cost of holding non-yielding gold, while the Dollar Index is around 99.33, near over one-month highs.
Technically, gold trades below shorter-term averages, with the 200-day SMA at $4,358 below price. RSI is near 40 and ADX near 19; resistance sits near $4,705, $4,793 and $4,850, with support around $4,500 and $4,358.
Central banks added 1,136 tonnes of gold worth about $70 billion in 2022. Upcoming events include Fed minutes on Wednesday, May PMI data on Thursday, and the University of Michigan sentiment survey on Friday.
Trade Setups And Key Levels
The current pressure on gold from a strong US Dollar and rising Treasury yields suggests a cautious to bearish stance in the near term. With the 10-year yield holding near 4.60%, the opportunity cost for holding gold is high, pushing prices toward late-March lows. Derivative traders might consider strategies that benefit from further downside or consolidation, such as buying put options or establishing bear put spreads.
We are closely watching the 200-day moving average around $4,358 as a major support level. A break below this would signal a significant downturn, but as long as the price remains above it, the broader uptrend is technically intact. Any short positions should probably have profit targets set above this critical floor.
This short-term weakness is occurring against a backdrop of strong institutional demand that we have seen for years. We recall the historic levels of central bank gold buying throughout 2023 and 2024, which helped build a solid long-term base for the metal’s price. This underlying support suggests that any deep sell-offs might be met with significant buying interest.
The market’s fear of Fed rate hikes due to oil-driven inflation is reminiscent of the cycle we experienced back in 2023. Back then, initial rate hikes also weighed on gold before the market shifted its focus back to geopolitical risk and debt sustainability. This historical pattern suggests the Fed’s hawkish stance may only be a temporary headwind for bullion.
The ongoing US-Iran negotiations create a major wildcard, keeping implied volatility a key factor in any options strategy. While the market is currently focused on inflation, any breakdown in talks could cause a rapid flight to safety, benefiting gold. This makes selling uncovered call options particularly risky, as a sudden headline could trigger a sharp price spike.
Given the conflicting signals, traders could look at June or July options contracts to navigate the coming weeks. A bearish position targeting a move toward the $4,400 level seems plausible, but it should be paired with a clear exit strategy. If the price instead reclaims the 50-day moving average near $4,705, it would invalidate the immediate bearish outlook.
