Gold fell more than 1% on Wednesday as the US Dollar recovered and risk appetite turned neutral on speculation that US-Iran negotiations could stall. XAU/USD was trading at $4,443, its lowest level since March 30, after demand for the Greenback firmed when Donald Trump said there would be no sanctions relief unless Iran gives up uranium. The White House also denied an Iranian state TV report on the contents of a draft sent to US negotiators, while the US Dollar Index (DXY) rose 0.06% to 99.20. Elsewhere, the Reserve Bank of New Zealand (RBNZ) held rates with hawkish guidance, keeping the door open to increases tied to an energy shock from the Middle East conflict.
In US rates markets, Federal Reserve commentary and repricing of policy expectations weighed on bullion, with Prime Terminal showing a nearly 50% probability of a hike towards year-end under Fed chair Kevin Warsh. Labour indicators were mixed: the ADP Employment Change four-week average eased to 35.75K from a revised 40.75K. On the charts, gold dipped to $4,401 before a modest rebound, with support at $4,400 and then $4,098, while resistance sits at $4,500, $4,550 and $4,600; the 50-day SMA is at $4,636. Central bank demand remains a structural backdrop, with purchases of 1,136 tonnes worth around $70 billion in 2022.
Technical Outlook and Downside Risks
Given the sharp break below the $4,500 level, we see the path of least resistance for gold as being lower in the immediate term. The strength in the US Dollar is the primary headwind, and we anticipate this trend will continue. The technical picture is deteriorating, with the Relative Strength Index (RSI) showing strong downward momentum without being oversold, suggesting there is more room to fall.
Macro Drivers and Strategy
The market is reacting to persistent inflation and the resulting hawkish stance from central banks, not just in the US. Recent data confirms this, with the latest US Core PCE reading for April coming in at 2.9%, stubbornly above the Fed’s target. Consequently, pricing from the CME FedWatch Tool now indicates a nearly 60% probability of at least one more rate hike by the end of 2026, which will continue to support the dollar and pressure non-yielding assets like gold.
Geopolitical tensions, like the situation with Iran, are currently causing a flight to the safety of the US Dollar rather than gold. This is a crucial shift in market behavior that we must respect. Historically, a stronger dollar during geopolitical uncertainty has often capped gold rallies, a pattern we’ve seen repeatedly since the rate-hike cycle began in the early 2020s.
For the coming weeks, we are positioning for further weakness and view rallies toward $4,500 as selling opportunities. We recommend buying put options with strike prices near the $4,400 support level, targeting expirations in late June or July 2026. This strategy offers a defined-risk way to profit from a potential move down towards the next major support zone around $4,100.
Given that the Gold Volatility Index (GVZ) has risen to 18.5, indicating increased uncertainty, using spreads may be more cost-effective. A bear put spread, such as buying a $4,400 put and selling a $4,250 put, would lower the entry cost. This approach is prudent if we expect a measured decline rather than a complete price collapse.
We will be closely watching this week’s US jobs report and GDP figures for any signs of economic weakness. Any data that forces the Federal Reserve to reconsider its hawkish posture could cause a sharp reversal in both the dollar and gold. A softer-than-expected jobs number, for instance, would be a signal for us to reduce our bearish exposure quickly.
