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In a long-term historical context, gold's rally since 2023 appears significantly overextended, as indicated by the monthly RSI surpassing 80. Such elevated RSI readings have coincided with major local tops and preceded sharp corrections.

In a shorter timeframe, the 3200 region transitioned from resistance to support following the minor correction between 3200 and 3000 in early April.

The U.S. equity market, represented by the S&P 500 index, remains vulnerable despite its notable rebound from early April lows. Clear overhead resistance levels are identified at 5500 and 5800.

After breaking down from a multi-year Head-and-Shoulders (H&S) top formation, soybean oil prices appear to have spent the past 16 months carving out a rounding bottom. Currently, prices are on the cusp of an upward breakout.

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Two weeks can feel like ages in today's rapidly evolving macro environment. Changing narratives, relentless headlines and volatile market swings have made navigating current conditions incredibly challenging. More than ever, it's crucial to maintain a cool head and avoid being swept up by the constant barrage of headlines.

Long-time readers of our "Fresh from the Trading Room" series will recognize our unwavering long-term bullish stance on gold. We firmly believe that, as J.P. Morgan famously said, "Gold is money. Everything else is credit." However, having a strong long-term view does not preclude us from being tactical in the short term. Markets rarely move in straight lines. It's critical for traders to differentiate short-term shifts in sentiment and positioning from fundamental, long-term trends.

Lately, we've noticed gold becoming increasingly crowded, with widespread media coverage celebrating its seemingly unstoppable climb to new highs almost every other day. Observing the extended technical charts and overheated market sentiment, we've started to question whether gold is overdue for a meaningful correction. Such a correction would serve to reset sentiment, momentum, and positioning back to more balanced levels, potentially laying a stronger foundation for upcoming advances.

Undoubtedly, gold's impressive rally over recent months has been largely fuelled by heightened geopolitical uncertainty and aggressive accumulation by central banks. However, mindful of the pitfalls of linear extrapolation, we must consider whether we've reached a "local peak" of fear and uncertainty. On the tariff front, for instance, it appears the period of maximum pressure may have passed, suggesting the path forward could lean toward negotiation and de-escalation rather than further intensification. Consequently, a reduction in uncertainty—and some profit-taking in gold—seems plausible.

Notably, we intentionally did not imply that equities have reached their "local bottom." We continue to view U.S. equity indices as unattractive from a risk-reward standpoint, primarily due to their sensitivity to headlines and the accompanying volatility. The elevated volatility makes identifying optimal entry points or protective stop levels difficult.

In times like these, aside from maintaining a rational mindset, it is essential to stay flexible and avoid becoming overly committed to any particular narrative, especially if price action signals otherwise. Technical analysis is invaluable during volatile market conditions, helping traders remain objective, manage risks prudently, and ultimately capitalize on market opportunities.

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We conclude with the following hypothetical trades:¹

Case Study 1: Long June 2025 Gold 3250 x 3150 put spread options (bear put spread) 

We would consider establishing a gold put spread by simultaneously buying one OGM5 3250 put and selling one OGM5 3150 put at the current spread cost of around 25 points. The maximum potential loss is limited to the full 25 points of premium paid if Gold futures settle at or above the higher strike price of 3250 at option expiry. The maximum potential profit is 75 points (3250 strike – 3150 strike – 25-point premium paid) and is realized if Gold futures settle at or below the lower strike price of 3150 at expiration. Each point in the Gold options contract represents 100 USD. For more information, QuikStrike is an excellent tool for option analysis, strategy building and many other analytical tasks.

Case Study 2: Long Soybean Oil futures

We would consider taking a long position in Soybean Oil futures (ZLK5) at the current price of 47.90, with a stop-loss below 40.90, a hypothetical maximum loss of 47.90 – 40.90 = 7 points. Looking at Figure 4, if the breakout at the overhead resistance is confirmed, soybean oil prices have the potential to climb to 64.90, resulting in 64.90 – 47.90 = 17 points. Each Soybean Oil futures contract represents 60,000 pounds of soybean oil, and each point move is 600 USD. Micro Soybean Oil futures (MZL) contracts are also available at 1/10^th of the standard size.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

This publication is provided by Inspirante Trading Solutions Pte Ltd (“ITS”) for general information and educational purposes only. ITS is NOT licensed or regulated for the provision of investment or financial advice, and we do not seek to do so.

Any past performance, projection, forecast, or simulation of results is not necessarily indicative of the future or likely performance of any investment.

Any expression of opinion, which may be subject to change without notice, is personal to the author, and ITS makes no guarantee of any sort regarding the accuracy or completeness of any information or analysis supplied.

None of the information contained here constitutes an offer or solicitation of an offer to buy, sell or hold any currency, product, or financial instrument, to make or hold any investment, or to participate in any particular trading strategy.

ITS does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. Suitable advice should be obtained from a licensed financial advisor for this purpose. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation of any sort. 

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