Gold edged up from an over one-week low on Friday, but the move came against a firmer US Dollar as the Federal Reserve maintained a hawkish stance. The dollar’s rise extended into a third session, with the USD Index (DXY) reaching its highest level since May 2025. The Fed kept its benchmark rate unchanged in a 3.5% to 3.75% target range at its first meeting under Chair Kevin Warsh, while the dot plot showed nine of 19 members still see a need for a rate rise this year if inflation remains sticky. CME Group’s FedWatch Tool indicates a 70% probability of a hike in September, keeping US Treasury yields elevated.
Geopolitical risk also shifted, after optimism around an interim US-Iran peace deal faded and US Vice President JD Vance cancelled a planned Switzerland trip for talks that were not yet finalised. Israeli air strikes in Lebanon added another layer of uncertainty. Liquidity was expected to be thin due to a US bank holiday for Juneteenth, while gold was positioned to post a third consecutive weekly decline. On the charts, repeated failures at the 200-day EMA left resistance at $4,358.53, as RSI sat near 36 and MACD remained negative.
Bearish Fundamental Environment for Gold
Given the Federal Reserve’s hawkish stance, we see continued pressure on gold. The latest Consumer Price Index data released last week showed core inflation holding firm at 3.8%, giving the central bank little reason to consider rate cuts. We therefore believe any rallies in gold are selling opportunities, as the fundamental environment remains bearish.
The US Dollar Index is currently trading around 108.50, its highest level in over a year, which makes gold more expensive for holders of other currencies. This strength is supported by elevated US Treasury yields, which provide a competitive, risk-free return that non-yielding gold cannot offer. We expect this dynamic to continue pulling investment flows away from the precious metal.
Positioning for Further Downside in Gold
In this environment, we are looking at buying put options on gold futures to capitalize on expected downside. The market’s repeated failure to break above the key $4,358 resistance level suggests a lack of buying power. This bearish technical setup reinforces our strategy to position for lower prices in July and August.
We are also considering selling out-of-the-money call options, as the upside for gold appears severely limited. This strategy allows us to collect premium by betting that gold will remain below specific price levels in the near term. Such a position aligns with the view that the path of least resistance is downwards.
Normally, escalating tensions in the Middle East might boost gold, but currently, this uncertainty is strengthening the US Dollar as the preferred safe-haven asset. We saw a similar dynamic in 2022 when an aggressive Fed policy overshadowed other factors, pushing the dollar higher at gold’s expense. The stalling of US-Iran negotiations will likely continue to benefit the dollar more than bullion.
