Gold prices increased by 1% on Friday, bouncing back from a slow week. However, overall performance remains weak, with a slight decrease of 0.2% on Monday, bringing the price to $3,366. Since the end of May, gold has been stuck in a narrow range, with buyers supporting the 100-day moving average. This situation keeps a positive outlook but shows a lack of energy to push prices higher.

Gold’s Stabilization Phase

Gold is in a holding pattern, waiting for a breakout from its current stabilization phase. The actions of the Federal Reserve and the bond market will significantly impact gold’s next steps. Typically, higher interest rates create challenges for gold. Yet, it’s the real interest rates that truly affect its performance. Keeping an eye on inflation and Treasury yields is essential, as they help determine real rates and consequently influence gold. Gold has been steady around $3,366 since the end of May 2025, following a strong increase earlier in the year due to expectations of Federal Reserve rate cuts. The 100-day moving average provides strong support, keeping buyers engaged. The market has already factored in two rate cuts by the Fed earlier this year, lowering the target rate to 4.00%. However, the recent July CPI figure of 3.1% has raised concerns about the timeline for future cuts. This uncertainty is the main reason for the current lack of movement.

Possible Market Changes

It’s critical to monitor the bond market closely for hints. With the 10-year Treasury yield at 3.8%, the real yield is just 0.7%, which is low enough to support gold prices. If upcoming inflation data drives the real yield closer to zero or negative, it could trigger a significant rally. For derivative traders, the steady market indicates attractive options premiums for low volatility strategies, such as selling strangles outside the recent range. However, this calm period likely won’t last, especially with important economic data on the horizon, pointing to potential price swings. To get ready for a breakout, buying long-dated call options might be a wise move to capture gains if inflation surprises on the upside and real yields drop. On the flip side, if disinflation speeds up faster than expected, put options could protect against a fall below the current range. The next CPI report and the Fed’s comments in September will be crucial for direction. Create your live VT Markets account and start trading now.

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