Gold extended its slide on Monday, taking the two-day fall to more than 4% as XAU/USD touched $4,268, the weakest level in over two months. The move came as demand shifted towards the US Dollar, supported by rising US Treasury yields, even as Israel and Iran traded missile strikes and intensified rhetoric that strained an already fragile ceasefire.
In macro markets, stronger US Nonfarm Payrolls data on Friday, alongside firm services and manufacturing readings earlier in the week, lifted expectations of tighter Federal Reserve policy. Technically, gold was trading around $4,289 after breaking below the 200-day SMA, with the RSI near 32 while the MACD remained below zero. Support levels were cited around $4,230 and then near the year-to-date low at $4,100, while resistance was seen at $4,350–$4,365, followed by the 200-day SMA near $4,435 and the bearish-channel top close to $4,515. Separately, central banks added 1,136 tonnes of gold worth about $70 billion to reserves in 2022, according to the World Gold Council.
Short-Term Outlook: Dollar Strength And Bearish Technicals
Given the strength of the US Dollar, we believe the path of least resistance for gold is lower in the immediate term. The latest jobs report, showing the US economy added a robust 272,000 jobs, supports a higher-for-longer interest rate stance from the Federal Reserve. We see this strengthening the case for short positions or buying puts, especially with the key US inflation report due this Wednesday.
With gold having broken below its 200-day moving average, a significant bearish signal, our focus shifts to downside targets. We are looking at put options with strike prices near the year-to-date low around $4,100. While the Relative Strength Index is near oversold territory, we believe there is more room for downside pressure before a meaningful reversal.
Volatility Strategies And Long-Term Support
The escalating conflict between Israel and Iran is increasing market uncertainty, which is pushing up implied volatility on gold options. This suggests strategies like long straddles could be profitable, capturing a large price swing in either direction if the situation escalates or de-escalates suddenly. We must be prepared for sharp, headline-driven moves that could override the current bearish technical trend.
Despite the current weakness, we cannot ignore the underlying support from central banks, which collectively bought a record 1,037 tonnes of gold last year. This strong institutional demand provides a floor for the price over the long term. For those with a longer horizon, this dip could be an opportunity to build positions through call options dated several months out, betting on a return to the safe-haven bid.
