Gold prices dropped over 0.40% following the US inflation report, which boosted the US Dollar. After reaching a high of $3,366, gold settled at $3,329. The US stock market reacted mixed after the June Consumer Price Index (CPI) showed rising prices. Traders are now looking towards the Federal Reserve’s next steps, waiting for more data before deciding on interest rates. Donald Trump announced 30% tariffs on the EU and Mexico, initially causing gold prices to rise. However, traders quickly reversed their positions as talks of potential agreements emerged. Trump also mentioned a trade deal with Indonesia, which affected market sentiment. He urged the Federal Reserve on social media to cut rates following the inflation report. Upcoming reports to watch include producer inflation, Retail Sales, jobs data, and the University of Michigan Consumer Sentiment report.

Gold Value And Interest Rates

Gold prices remained between $3,300 and $3,350 as the US Dollar Index increased by 0.55% to 98.64. The June CPI rose by 2.7% year-on-year, with the core CPI at 2.9%. Rising US Treasury yields have decreased expectations for rate cuts, with the 10-year Treasury yield up five basis points to 4.487%. Although gold’s upward trend continues, further declines could pose threats unless gold prices rise past $3,350. Gold is seen as a safe-haven asset and a store of value. Central banks buy gold to support their currencies, with a record 1,136 tonnes acquired in 2022. Gold typically moves opposite to the US Dollar and US Treasuries. Factors such as geopolitical instability, interest rates, and Dollar performance impact gold prices. A strong Dollar often keeps gold prices down, while a weaker Dollar supports them. We believe the recent inflation data, showing a 3.3% annual increase in the Consumer Price Index, reinforces the Federal Reserve’s careful approach. Although this figure was slightly lower than expected, it is not enough to trigger immediate rate cuts. Markets are now anticipating only one or two rate reductions later this year. This expectation of sustained high interest rates will likely limit significant gains for gold in the near future. The possibility of new tariffs, as mentioned by Trump, adds uncertainty that traders can take advantage of. During the 2018-2019 trade war escalation, gold prices soared over 20% as investors sought safe havens. We expect similar announcements as the election approaches to create short-term volatility and buying pressure, supporting prices.

Trading Strategies And Market Support

Right now, the US Dollar Index is stable above 105, while the 10-year Treasury yield hovers around 4.25%, creating challenges for gold. For gold prices to decisively surpass recent peaks near $2,400 per ounce, we’d need to see a consistent weakening of the dollar and falling yields. Until then, gold prices will likely react to daily economic data. Given these competing factors, we expect gold to stay within a range of $2,300 to $2,400 in the coming weeks. A smart derivative strategy would be to sell volatility, such as using an iron condor or selling strangles, to profit from price stability. This strategy allows traders to gain from time decay as long as gold does not make a large, unexpected move outside this range. A strong demand from central banks supports the market. The World Gold Council reported that central banks added a record 290 tonnes to their reserves in the first quarter of 2024. This ongoing institutional buying should limit potential declines in gold prices, making any significant drop an attractive opportunity for longer-term investors. Create your live VT Markets account and start trading now.

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