Gold fell close to 1.5% over the week, extending a run of six straight weeks of lower or flat closes, even as the Middle East conflict moved into its fourth month with a ceasefire still unsigned. Prices are drifting towards $4,000, a long way from the February record near $5,600, with the market treating the metal less as a geopolitical hedge and more as a derivative of US real yields. The Federal Open Market Committee held policy at 3.75% in June, yet a firmer dot plot has pulled expectations towards a 2026 hike rather than the cuts previously anticipated, while the US Dollar Index sits at a 13-month high.
Inflation dynamics have reinforced that rates-led narrative. Headline CPI rose above 4% YoY in May, and markets now focus on next Thursday’s US releases at 12:30 GMT: the third estimate of first-quarter GDP and May PCE. Core PCE is seen at 0.3% MoM versus 0.2%, and a print at or above that could keep upward pressure on real yields and test $4,000, with support also at $4,120. Resistance is cited around $4,200, then the 200-day EMA near $4,365 and the 50-day EMA around $4,500; Stoch RSI has pushed back towards overbought.
Fed Policy, Real Yields, And Gold’s Downward Momentum
We are seeing that gold’s price has almost nothing to do with geopolitical fear and everything to do with the Federal Reserve. The recent May PCE inflation report confirmed this, coming in at a sticky 2.9% year-over-year. This has cemented the market’s belief that the Fed will keep rates higher for longer, overriding any safe-haven bids for the metal.
For us, the only chart that matters is US real yields, which are holding firm above 2.1%. This increases the opportunity cost of holding a non-yielding asset like gold. A strong U.S. Dollar Index, currently trading above 105, is creating additional headwinds for the metal.
Bearish Outlook And Positioning Strategies
The market has fully embraced the Fed’s tightening signal, with futures now pricing in over a 65% probability of another rate hike by the September meeting. This means any short-term rallies in gold are likely to be sold into. We see the path of least resistance as being firmly to the downside.
Given this outlook, we believe a bearish stance using derivatives is appropriate for the coming weeks. Buying put options with strike prices at or below the $4,000 handle offers a clear way to position for a breakdown. Selling call credit spreads above the major resistance at $4,365 could also be an effective strategy to collect premium while maintaining a bearish bias.
We are also watching speculator positioning closely, as recent CFTC data shows that hedge funds remain significantly long. A clean break below the critical $4,000 support level could trigger a wave of forced selling from these positions. This long squeeze would likely accelerate the move down into the high-$3,000s.
