Gold is trading today between $3,340 and $3,370. The market is reacting to the possible 30% US tariff on imports from the EU and Mexico, which may start on August 1. This has increased demand for Gold as a safe investment, with current prices around $3,350 and resistance at $3,370. Concerns have risen due to communications from US President Trump to leaders in the EU and Mexico about these tariffs, which has driven more people to buy Gold. On Tuesday, key economic data, including US inflation figures, is expected to affect Gold prices further.

Shift In Momentum

Gold has broken out of a triangle pattern on daily charts, indicating a shift in momentum. The price moving above the 20-day Simple Moving Average (SMA) near $3,340 shows more bullish sentiment. However, resistance at the 23.6% Fibonacci retracement level around $3,371 poses a challenge. If Gold closes above $3,371, it could move toward $3,400 and potentially rise to the June high of $3,452. If it fails to stay above the 50-day SMA at $3,327, attention may return to support at $3,300. The Relative Strength Index at around 56 suggests bullish momentum, with room for more gains before reaching overbought conditions. Given the current situation, we believe traders in derivatives should brace for increased volatility rather than a clear trend in the weeks ahead. The geopolitical issues, especially related to tariffs, are becoming more real. The Biden administration’s recent tariffs on Chinese electric vehicles and semiconductors, starting August 1, have been mostly factored into the market. However, the possibility of retaliatory actions from Beijing keeps the safe-haven demand for Gold active, providing a price floor. The main driver remains the Federal Reserve’s struggle with inflation.

Technical Analysis And Strategy

The most recent Consumer Price Index (CPI) report revealed inflation dropping to 3.3% in May, which initially seemed positive for Gold. However, the Federal Reserve later indicated only one potential rate cut this year, down from three anticipated in March. This “higher for longer” approach limits Gold’s upside potential since it makes holding non-yielding assets less appealing. We find ourselves caught between a geopolitical support and monetary resistance. Traditionally, Gold tends to perform well after the last rate hike in a cycle, but the ongoing pause is creating uncertainty. From a technical viewpoint, Gold appears to be coiling. After failing to maintain record highs above $2,400, it is now in a consolidation phase. The price is currently hovering around its 50-day moving average, which is a crucial test of short-term confidence. The Relative Strength Index in the low 50s supports this neutrality, indicating potential movement in either direction before overbought or oversold conditions arise. Therefore, our strategy has shifted from focusing on a specific direction to trading on volatility. For traders expecting a sharp move after the upcoming economic data, a long strangle (buying an out-of-the-money call and an out-of-the-money put) for August expiration could be wise. This strategy benefits from significant price fluctuations, regardless of direction. For those with a slightly bullish bias who want to reduce costs, we suggest bull call spreads, like buying the August $2,350 call and selling the $2,425 call. This approach limits risk and potential rewards while aiming for movement toward the higher end of the current range without needing a full breakout above the tough resistance established by the June high. Alternatively, those holding long positions might consider collars, which involve buying protective puts financed by selling covered calls to protect against a drop below critical support around the $2,300 level. Create your live VT Markets account and start trading now.

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