Gold prices (XAU/USD) fell nearly 0.7%, reaching around $3,360 during Thursday’s European session. This drop came after global trade tensions eased. The expectation of a US-EU trade agreement before the August 1 tariff deadline lowered the demand for safe-haven assets like Gold. The US-Japan trade deal, which includes a 15% auto tax, raised concerns among EU officials about losing their market share. With trade disputes possibly being resolved, interest in Gold has diminished, worsened by a strengthening US Dollar.

Major Dollar Movements

The US Dollar Index (DXY) climbed to nearly 97.40, rising from a low of about 97.00. A stronger USD can make Gold more expensive, negatively impacting its price. In 2022, central banks bought a significant amount of Gold, totaling 1,136 tonnes, the highest annual amount on record. Several factors influence Gold prices, including geopolitical instability and the strength of the US Dollar. If Gold falls below the May 29 low of $3,245, it could drop to $3,200 or even $3,121. On the other hand, if it rises above $3,500, we may see resistance around $3,550 and $3,600. Gold remains a hedge against inflation and currency loss, making it appealing during economic uncertainty. We advise derivative traders to be wary of the challenges in currency markets. The US Dollar Index has recently climbed above 105, its highest level in over a month, driven by strong US job data that dampens hopes for quick Federal Reserve rate cuts. This ongoing strength in the Dollar is likely to limit any significant short-term gains for Gold.

Institutional Demand And Inflationary Pressures

Nevertheless, strategic buying gives Gold a strong support base. The World Gold Council noted that central banks continued their strong buying into 2024, adding 290 tonnes in the first quarter—the best start to any year on record. This demand from large players implies that price dips will be seen as buying chances, creating a solid price floor. Inflation data also clouds the bearish outlook. The latest US Consumer Price Index shows that inflation stays stubbornly high, above the central bank’s target. Gold’s traditional role as a hedge against inflation remains crucial. This factor will likely offset some pressure from a strong Dollar and rising interest rates. Considering these mixed influences, we expect heightened price volatility instead of a clear trend. For derivative traders, this environment suits strategies that benefit from price swings, like buying straddles or strangles on Gold options. This strategy allows traders to profit from significant price movements in either direction without needing perfect predictions. Traders should closely monitor key technical levels, which have shifted from those in the initial report due to current market values. A critical support level is near $2,280 per ounce; a strong break below this may indicate a deeper correction toward $2,200. Conversely, if Gold climbs back above $2,350, it would suggest that buyers are regaining control, aiming to retest the all-time highs near $2,450. Create your live VT Markets account and start trading now.

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