Gold prices have dropped below $3,350, largely due to higher US yields and a stronger US Dollar. Improved confidence from US-China and EU-US trade talks has decreased gold demand, causing XAU/USD to struggle to maintain support levels. Currently, gold is trading under $3,330, down more than 1% as higher US Treasury yields weigh on prices. The recent US Durable Goods Orders report showed a 9.3% decline in June, which, while not as severe as expected, is a notable drop from the May increase of 16.5%.

How Easing Trade Tensions Impact Gold Prices

Lowering global trade tensions have caused gold prices to retreat, especially as tariff discussions with the European Union progress. Upcoming US-China trade talks could influence market sentiment and gold demand, particularly if tariffs are adjusted. Declining US Initial Jobless Claims show a strong labor market, which supports higher yields and boosts the US Dollar. The market currently sees a 62.3% chance of a 25-basis-point Fed rate cut in September, but caution remains due to ongoing trade issues. Gold’s price is under pressure, approaching a critical support level in an ascending triangle. If it breaks these key support levels, prices could drop significantly, but the overall uptrend might continue if they hold. Given the current challenges for gold, which recently fell below $2,330, traders might want to consider bearish positions. The strong US Dollar, with the DXY index above 105, paired with high US 10-year Treasury yields around 4.4%, creates tough conditions for gold. Buying put options could be a smart move if we see a potential drop below key support. The labor market’s unexpected strength, highlighted by the addition of 272,000 jobs in the Non-Farm Payroll report, strengthens the case for a stronger dollar. This solid economic data reduces the chance of aggressive rate cuts from the central bank, making gold, a non-yielding asset, less attractive.

Investment Strategies in a Changing Market

Market expectations have shifted, with the CME FedWatch Tool indicating that the likelihood of a September rate cut has dropped to about 50%. This change suggests that interest rates may stay higher for a longer period, which typically puts downward pressure on gold prices. As a result, strategies like selling out-of-the-money call options or setting up call credit spreads could be wise moves to earn premium while betting on limited price rallies. The easing of global trade tensions also reduces gold’s appeal as a safe haven. Progress in tariff negotiations alleviates market fears, promoting investment in riskier assets over gold. We believe this trend of improved risk appetite will likely continue and weigh on gold prices in the weeks ahead. We are closely monitoring the ascending triangle support, as a break below this level could lead to increased selling. Historically, times of a strong dollar and strict monetary policy, like now, have been unfavorable for precious metals. If the current technical formation fails, we could see a deeper market correction. Create your live VT Markets account and start trading now.

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