Gold prices are nearing $3,400, driven by rising trade tensions between the US and the EU. Germany, France, and other EU nations are ready to fight back against tariffs proposed by US President Trump, which could disrupt global trade. Currently, gold is trading around $3,385 in Europe, close to its monthly high of about $3,400. A report from the Wall Street Journal indicates that the US may raise the baseline tariff rate, creating challenges for EU trade strategies that were expecting a 10% rate.

Gold Price Factors

With the August tariff deadline approaching, tensions may rise, increasing demand for safe-haven assets like gold. At the same time, if the Federal Reserve chooses to keep interest rates steady in September, this could limit gold’s potential for growth. Gold is currently moving within a Symmetrical Triangle pattern, suggesting limited price fluctuations. The 20-day EMA supports at about $3,347, while the 14-day RSI is close to 60, indicating possible bullish momentum. If gold breaks above $3,500, it could reach new heights, but if prices decline, support may be found around $3,200. Gold continues to be a key safe-haven asset amidst global uncertainties. Central banks, especially in emerging economies, have been actively increasing their gold reserves, adding 1,136 tonnes in 2022. Given the current environment, we believe that derivative traders should prepare for a significant price move, although the direction remains uncertain. The conflict between rising geopolitical risks and a firm central bank creates a delicate balance. Therefore, strategies that can benefit from a major price swing in either direction may be wise in the upcoming weeks.

Trading Strategies and Market Dynamics

The possibility of new tariffs presents a strong case for a bullish outlook, and we should keep an eye out for real-world events that could confirm this. Ongoing disagreements over electric vehicle subsidies and steel tariffs between Washington and Brussels are fueling trade tensions. This ongoing friction supports the idea of using long call options or bull call spreads to capture potential gains from any sudden increases in prices. History suggests that long-term trade disputes are beneficial for gold. During the US-China trade war from mid-2018 to late-2019, gold prices surged as investors sought safety amid market uncertainty. We see the current EU situation as a potential repeat of this trend, backing our bullish outlook. However, the central bank’s monetary policy poses a significant challenge. Recent Federal Reserve comments indicate a “higher for longer” approach to interest rates. The CME FedWatch Tool shows a very low chance of a rate cut by September, which could dampen gold’s appeal. Consequently, put options may serve as a useful hedge against any price drops if rate expectations remain strong. The Symmetrical Triangle pattern suggests a period of reduced volatility before a sharp price move. For derivative traders, this indicates it’s an opportune time to prepare for that shift. Strategies like a long straddle, where both a call and a put option at the same strike price and expiration are purchased, may be effective in profiting from upcoming volatility. This technical setup suggests that options could be relatively inexpensive now compared to their future prices after a breakout. Buying options before market uncertainty resolves allows traders to position for significant price movements at a lower cost. Delaying purchases until after the tariff deadline or a central bank announcement may result in paying a much higher premium for the same exposure. Lastly, steady purchases by central banks create a solid long-term price floor. According to the World Gold Council, central banks bought a net 290 tonnes in the first quarter of 2024, marking the strongest start to a year on record. This institutional demand advises caution against overly aggressive bearish positions, as it provides solid support against significant price drops. Create your live VT Markets account and start trading now.

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