Gold prices are currently unstable, with no clear direction. Efforts to drop below $3,340 have been limited. The metal is stabilizing after losses around $3,375, as the market awaits the US PPI data. Gold has dropped from last week’s peak of over $3,400, finding support between $3,335 and $3,345, which corresponds to the 50% Fibonacci retracement. Technical analysis reveals a consolidation after reaching the target at $3,345. Daily chart candlestick wicks show that the market is hesitant.

Potential Price Movement

If prices fall below $3,330, attention may shift back to the $3,305-$3,315 range. Conversely, if prices rise above $3,375, they could reach between $3,400 and $3,410, possibly even hitting late July highs around $3,440. Gold is widely seen as a safe-haven asset and a hedge against inflation. Central banks are increasing their gold reserves as a diversification strategy, having added 1,136 tonnes worth $70 billion in 2022. Gold prices tend to move inversely to the US Dollar and Treasuries. A weaker Dollar usually boosts gold’s value. Various factors, such as geopolitical issues and interest rates, impact gold pricing, often tied to the Dollar’s strength. Gold is currently stuck in a narrow range, so derivative traders should prepare for a potential breakout after this phase of consolidation. The market is anticipating clear signals, especially from recent US inflation data. This uncertainty creates opportunities.

Market Reactions to Inflation Data

The July 2025 Producer Price Index (PPI) data has been released, coming in slightly higher than expected at 0.5% month-over-month. This has reignited worries that the Federal Reserve may continue its restrictive stance, strengthening the US Dollar Index to around 105.5—its highest level since late 2024—which puts pressure on gold prices. Traders expecting this downward trend might consider buying put options below the $3,330 support level. If prices break below $3,330, we anticipate a quick decline to the $3,305-$3,315 range. However, the market tends to forget quickly, and any sign of economic weakness could reverse the Dollar’s strength. A rise above the $3,375 resistance would change the bearish outlook, making call options with a $3,400 strike price a smart choice. We must acknowledge the strong support from central banks, which stabilizes gold prices. After significant purchases in 2022 and 2023, data from early 2025 shows that central banks are still rapidly adding to their reserves. This ongoing demand suggests any large drops will likely attract buyers. Given the indecision reflected in daily candlestick charts, a volatility strategy may be wise. We could use a straddle, which involves buying both a call and a put option at a central strike price like $3,360. This approach allows us to profit from a large price movement in either direction once the market decides on a trend. Historically, we saw a similar situation in 2023, where tough Fed comments caused temporary declines in gold, only for inflation pressures to push it back up. This trend indicates that while a short-term drop is possible, the long-term outlook remains bullish due to inflation concerns and central bank demand. Hence, any bearish positions should be managed with strict stop-loss orders. Create your live VT Markets account and start trading now.

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