Gold trades the range as risks simmer.

Gold continues to pivot around the USD 3,300/oz level amid subdued speculative interest and declining implied volatility, but issues around tariffs and the Federal Reserve continue to simmer.

• Gold continues to pivot around the USD 3,300/oz level with implied volatility subsiding, supporting my strategy of selling short-dated (two-week to one-month) gold call options against an underlying long exposure.

• Indicators from COMEX and gold-backed ETFs suggest speculative interest has subsided while short-dated option skew is now nearly flat.

• At present, gold is highly correlated with the US dollar index (DXY), suggesting that if/when the US dollar resumes its downtrend, gold breaks higher.

• President Trump’s Liberation Day tariffs have been struck down by the US Court of International Trade, only to be reinstated by the Appeals Court pending a ruling, with the Administration indicating a willingness to take the case to the Supreme Court.

• President Trump met with US Federal Reserve Chairman Powell and didn’t miss the opportunity to brow-beat the Chairman, to little effect for now.

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Over the past fortnight, I’ve written two thematic notes that I’d recommend too you.

The first note has been one of my highest read articles. It deals with Platinum (HERE), noting that the metal is now in its third consecutive year of supply deficit, with above-ground stocks falling and the metal looking likely to break out of its recent tight range.

The second article (HERE) deals with US fiscal policy. It’s a bit more of an economist’s article, and hasn’t been picked up as widely, but I think US fiscal policy is important to have some understanding of, as it’s central to all US-focused discussion.

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Gold continues to range-trade.

Over the past week, gold has traded in a USD 3,245-3,356/oz (3.4%) range with the metal appearing to be trapped inside a broad USD 3,120-3,440/oz range. While gold remains well above its 200-day moving average (USD 2,836/oz), momentum indicators remain subdued consistent with little direction. In the short-term, I expect this range-trading environment to persist. Should we see a breach of USD 3,120/oz we are likely to get a test of psychological support around the USD 3,000/oz level, where I imagine we will see longer-term buying interest from Central Banks, Jewelers, and longer-term investors. A breach of USD 3,450/oz is likely to trigger renewed speculative interest from COMEX futures traders and gold-backed ETF buyers, who’ve been winding back exposure recently.

This view appears to be playing out in the over-the-counter options market. Option volatility has been elevated, but is’ declining with implied volatility now nearly flat at around 17.5% out to one-year. Gold volatility remains above its past year average of around 15.25%, suggesting scope for volatility to decline slightly further. Meanwhile, option skew has declined with one-month 25-delta risk reversal skew nearly flat (0.25%) although one-year skew remains strongly in favor of gold call options (2.35%).

Gold is fluctuating in line with movements in the US dollar.

Over the past three months, fluctuations in the price of gold have moved almost in tandem with fluctuations in the US dollar index (DXY) with a daily correlation of -0.94. At present, fair value based on a simple linear regression on daily data year-to-date suggests fair value for gold at USD 3,318/oz, implying gold is trading at a fractional discount relative to the dollar, although I don’t place much weight on short-term regressions, which tend to be unstable. The beta of gold to movements in the USD index is 1.83:1 implying that a 1pp fall in the USD index would boost the price of gold 1.83%.

In the current environment, I’m not surprised to see such a high beta and anticipate that if/when the US dollar resumes its downtrend, gold will break higher and as it does so, we will see the rapid re-emergence of large speculative net long exposures on both COMEX and in gold-backed ETFs as well as renewed demand for gold call options, boosting short-dated skew.

Litigation of the Liberation Day tariffs is unlikely to de-rail the Administration.

On Wednesday, the US Court of International Trade blocked President Trump’s Liberation Day tariffs, with the Court ruling that “the President’s assertion of tariff-making authority in the instant case, unbounded as it is by any limitation in duration or scope, exceeds any tariff authority delegated to the President under IIEPA [International Emergency Economic Powers Act]. The Worldwide and Retaliatory tariffs are thus ultra vires and contrary to law” and President Trump’s tariffs do not meet the limited condition of “an unusual and extraordinary threat.”

The Administration wasted no time in responding, blocking the ruling at the Court of Appeals, while threatening to take the matter to the Supreme Court.

While the courts determine whether President Trump acted illegally in imposing his 2^nd of April tariffs, they remain in place for now. While the Court has blocked the 10% baseline tariff, the 20% additional tariff on China, and the 25% tariff on non-USMCA compliant imports from Canada and Mexico. However, tariffs levied under Section 232 of the Trade Expansion Act (1962), including those on auto’s, aluminum, and steel, remain in place.

While the Court has blocked the 2^nd of April tariff measures, the Court has essentially told the Administration that they can have their tariffs, but they must follow the breadcrumbs rather than act unilaterally. The President can impose a tariff of up to 15% for up to 150 days, to address a balance of payments deficit, under Sec. 122 of the Trade Act (1974), after which an Act of Congress would be required to extend the tariff (which seems improbable). As there is no requirement for a formal investigation, the Administration can do this straight away, replicating the 10% tariff.

The President can extend his tariffs under Section 232, and it is likely we will see this avenue pursued regarding tariffs on pharmaceuticals and semiconductors. As trade is typically highly concentrated by HTC code, imposing tariffs on a handful of items per country could go a long way towards replicating an across-the-board tariff. For instance, German exports to the US are concentrated in automobiles (HS code 8703), nuclear reactors and machinery (8401), electrical machinery and equipment (8501), pharmaceuticals (3306), and optical, medical, and surgical equipment (9031). The Administration can also launch an investigation under Section 301 of the Trade Act (1974) into unfair trade practices, with no limit on the level and duration of the tariffs that can be applied. Finally, the Administration can invoke Section 338 of the Trade Act (1930) to impose a tariff of up to 50% on countries that discriminate against the US with no required formal investigation. This seems like an appropriate path to take for countries with obvious tariff barriers such as China, India, Indonesia, and Vietnam.

So, while the Court has complicated matters, it’s not derailed the tariffs by any means. It’s simply said to the Trump Administration that they don’t have the power to raise and lower tariffs by tweet. This hasn’t been lost on trade advisor, Peter Navarro, who commented “even if we lose, we will do it another way.”

President Trump browbeats Chairman Powell.

On Thursday, President Trump summoned Federal Reserve Chairman Powell to a meeting at the White House, their first meeting since the President took office in January. In response to the meeting, the Federal Reserve made a short statement (HERE) indicating that he discussed the economic outlook with the President but did not discuss monetary policy, with the Chairman stressing that policy will continue to be set according to the Federal Reserve’s Congressional mandate based on incoming data.

It appears the President took the opportunity to browbeat the Chairman, arguing that it was a mistake not to be lowering interest rates. While President Trump appears to have (temporarily) backed away from trying to fire or seek a resignation from the Chairman, he commented in an NBC News interview earlier in May that he will get to “change him very quickly anyway…you know, it’s a very short period of time.”

While Polymarket assigns the highest odds to former Federal Reserve Governor Kevin Warsh being named next Chairman, I remain unconvinced. I believe President Trump will look to appoint a MAGA loyalist who will do the President’s bidding. President Trump’s leaning on the Federal Reserve is becoming increasingly Nixonian, raising the issue of the Federal Reserve’s independence and the integrity of the 2% inflation target.

While the Chairman won’t take office until May 2026, this is a huge deal for the bond market, the dollar, and gold, here and now.

The information in this publication is provided by Redward Associates Private FZCO for informational purposes only. The insights contained in this publication are not investment advice and should not be construed as such, nor as a recommendation for any specific investment product. Our full disclaimer can be found HERE.