Gold was flat on Monday as a pause in Iran–Israel attacks supported risk appetite, while US macro risks kept bullion capped. XAU/USD traded at $4,332 after touching an intraday low of $4,268, following a near-5% weekly fall after a stronger US Nonfarm Payrolls report. US equities were rallying, while the US Dollar Index (DXY) was steady around 100.00 and US 10-year Treasury yields rose two basis points to 4.552%, limiting upside. Oil added over 1% via West Texas Intermediate (WTI), even as the absence of a clear US–Iran deal kept geopolitics in focus.
Attention turns to US Consumer Price Index (CPI) data, expected at 4.2% year-on-year in May after 3.8% in April. Rate pricing implied 24 basis points of Federal Reserve tightening by end-2026. The New York Fed Survey of Consumer Expectations showed one-year inflation expectations easing to 3.5% from 3.6%, while three- and five-year readings held at 3.1% and 3%. Technically, gold remains below the 200-day Simple Moving Average at $4,436, with the Relative Strength Index at 34.05; key levels include $4,200, $4,098 and $4,000 on the downside, and $4,500, $4,550, $4,623 and $4,792 on the upside.
Inflation Data: The Key Catalyst for Gold
Given the market’s focus, we see the upcoming US Consumer Price Index report as the primary catalyst for gold in the next few weeks. The current flat price action is merely a consolidation before this major data release, with the market expecting a high 4.2% year-over-year inflation print. A number this high would far exceed the 3.3% annual inflation seen in May 2024, reinforcing the case for a hawkish Federal Reserve.
Our strategy is therefore positioned for downside in gold, as the market is already pricing in 24 basis points of rate hikes by the end of the year, not cuts. This environment of rising yields makes holding a non-yielding asset like gold increasingly expensive. We believe option traders should consider buying puts or establishing bearish put spreads to capitalize on a potential drop following the inflation data.
Technical and Geopolitical Factors Supporting a Bearish View
The technical picture supports this bearish view, with gold trading firmly below the key 200-day moving average at $4,436. The Relative Strength Index is sitting near 34, indicating sellers are in control and there is still room for further declines before the asset is considered oversold. We will be watching for a break of the recent low of $4,268 as a trigger to add to short positions.
Volatility is expected to rise significantly around the CPI announcement, which is a known market-moving event. Historically, inflation reports that come in hotter than expected have led to sharp increases in Treasury yields and the US Dollar, causing gold to sell off abruptly. We anticipate a similar reaction if forecasts for a strong inflation number are met or exceeded.
While geopolitical tensions in the Middle East offer some underlying support, we view this as a secondary factor to the overwhelming influence of US monetary policy right now. Any de-escalation would likely remove this price floor and add to the downward pressure on gold. For now, the path of least resistance appears to be lower, driven by the anticipation of persistent inflation and a Federal Reserve that is leaning toward tightening policy.
