Gold rebounded on Tuesday, recouping Monday’s decline and moving back above $4,500, with XAU/USD around $4,530 after failing to sustain a push past $4,540. The move came as Israel and Hezbollah agreed a partial ceasefire, while Donald Trump said Benjamin Netanyahu had frozen plans to attack Beirut, helping keep the US Dollar Index (DXY) under pressure even as broader risk appetite stayed muted. US-Iran peace talks remained stalled and the Strait of Hormuz was closed, with no plan to reopen it in sight.
Attention turned to US data after factory figures pointed to healthy activity in May, with the JOLTS Job Openings report next ahead of a week of labour releases culminating in Nonfarm Payrolls, a focal point for the Federal Reserve (Fed) policy outlook. Technically, rangebound trade persisted: the 4-hour RSI near 55 and a positive MACD indicated easing downside pressure. Resistance sits at $4,590, with an upside break opening $4,645, while support is seen at $4,445, then $4,370, and the bearish-channel base near $4,340. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022.
Conflicting Forces and Technical Outlook
We see gold is caught between conflicting forces, creating a tight trading range. The ceasefire in Lebanon is capping the upside, but the ongoing tensions with Iran and the closure of the Strait of Hormuz are providing a solid floor. This standoff suggests that for now, price action will be driven by technical levels and short-term news.
The main event we are waiting for this week is the US labor market data, starting with the JOLTS Job Openings. These figures are crucial as they will heavily influence the market’s expectation of the Federal Reserve’s next move. Recent data, like the April 2024 JOLTS report which showed job openings falling to a three-year low of 8.059 million, indicates a cooling labor market which could push the Fed towards cutting rates.
If the upcoming Nonfarm Payrolls report confirms this cooling trend, we expect the US Dollar to weaken, which would likely push gold higher. Historically, the periods leading up to a Fed easing cycle have been very positive for gold prices. We are therefore positioning for a potential breakout, seeing the current consolidation as a temporary pause.
Strategy and Central Bank Demand
Given the uncertainty ahead of the jobs data, we are looking at options to trade the expected increase in volatility. The CBOE Gold Volatility Index (GVZ) is currently subdued, but we anticipate a sharp spike around the payrolls release. Buying straddles or strangles could be an effective way to profit from a large price move, regardless of the direction.
We are using the established technical levels to guide our execution strategy. A sustained move above the $4,590 resistance level would be a trigger for us to add to bullish positions, likely through call options. Conversely, a breakdown below the $4,445 support would signal that the bearish pressure is returning, prompting us to consider put options for downside protection.
Underlying this short-term picture is the powerful, ongoing demand from global central banks. The World Gold Council confirmed that central banks collectively bought 290 tonnes in the first quarter of 2024, continuing the strong purchasing trend seen in recent years. This consistent buying provides a strong long-term foundation for the price, making us hesitant to be aggressively short.
