Gold (XAU/USD) extended a third straight daily decline, touching one-week lows near $4,121 and hovering around the $4,120 area, leaving it on course for a 1.7% weekly fall and a three-week losing run. Pressure has come from shifting expectations that the Federal Reserve could tighten policy in 2026, even as the US Dollar softened in thin Juneteenth trading. The Fed held rates on Wednesday, while pointing to solid activity and an improving labour market; projections showed nearly half of policymakers anticipate at least one rate rise in 2026, alongside a stated commitment to return inflation to 2%.

Derivatives pricing implies a 77% probability of a Fed rate hike at October’s meeting, up from under 40% a week earlier, and a 90% chance of at least a quarter-point tightening before year-end. Technically, XAU/USD was around $4,147.83 with a pattern of lower highs and lower lows; RSI remained below 50 and MACD sat at -7.15. Support has held above $4,100 so far, but focus is on the year-to-date low at $4,023 and then $3,885, while resistance is seen near $4,370 and later $4,585. Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest annual buying since records began.

Fed Policy and Gold Price Outlook

Given the Federal Reserve’s firm stance, we believe the path of least resistance for gold is lower in the weeks ahead. The market is aggressively pricing in rate hikes, with a 77% probability for an October move, creating a significant headwind for non-yielding assets. Our strategy, therefore, is to position for further weakness.

This view is supported by the latest economic data, which showed the U.S. unemployment rate fell to 3.7% in May, and core inflation remains sticky at 3.1%, giving the Fed little reason to change course. Historically, gold has underperformed during the initial phases of aggressive tightening cycles, as seen in early 2023 when similar conditions caused a rapid price correction. We expect this pattern to repeat.

Tactical Strategies and Market Signals

For our part, we are looking at buying put options to capitalize on a potential break of the year-to-date low at $4,023. Specifically, we see value in August expiration puts with strike prices around $4,000, as this gives the trade time to develop. This provides a clear, risk-defined way to profit from the expected downward momentum.

Alternatively, selling out-of-the-money call options or establishing bear call spreads offers another way to express this bearish view while generating income. We see the heavy resistance around the $4,370 level as a strong ceiling for the time being. This strategy benefits if gold prices fall, move sideways, or even rise slightly, as long as they stay below our short strike price.

We are also observing significant outflows from major gold-backed ETFs, with SPDR Gold Shares (GLD) shedding over 50 tonnes from its holdings since the start of the month. This signals that institutional investors are reducing their exposure in anticipation of higher yields elsewhere. This flight of “big money” often precedes sustained price drops.

Finally, the U.S. Dollar’s renewed strength will continue to pressure gold prices. As long as Fed tightening remains the dominant narrative, the dollar will likely remain bid, making gold more expensive for holders of other currencies. We will be closely watching the Dollar Index (DXY) for a break above its recent high of 106.50 as a key trigger for our next move.