Geopolitical Escalation Lifts Safe Haven Demand
Iran then attacked US air bases in the region, increasing risk aversion and supporting demand for Gold and the US Dollar. The action followed several rounds of high-level nuclear talks last week, and US President Donald Trump said the campaign could last “four weeks or less”. The conflict raised concerns about supply disruption in the Strait of Hormuz, which handles nearly 20% of global Oil shipments. WTI crude rose above $70 per barrel, its highest level since June 2025, and was about 5.50% higher at the time of writing. Markets also focused on US trade policy uncertainty and expectations of Federal Reserve rate cuts later this year. This week includes ADP Employment Change and Nonfarm Payrolls, while inflation data has led traders to reduce near-term easing bets. US data showed ISM Manufacturing PMI eased to 52.4 from 52.6, Employment rose to 48.8 from 48.1, and New Orders fell to 55.8 from 57.1. Prices Paid jumped to 70.5 from 59.0. Technically, price stayed above the 21-day and 50-day SMAs, with RSI at 65 and ADX near 20. Resistance sat near $5,400-$5,500, then $5,598, while support was near $5,040, then $4,900 and $4,815.Volatility Elevated Across Markets
Given the sharp increase in geopolitical risk, we should anticipate that implied volatility across asset classes will remain highly elevated. The VIX index, a measure of stock market volatility, has already jumped 35% to over 22.0, and we are seeing similar spikes in volatility indexes for gold and oil. Derivative traders should consider strategies that benefit from this, such as buying straddles or strangles, which profit from large price moves in either direction. For gold specifically, the current environment is highly supportive, acting as both a safe-haven asset and an inflation hedge. With the price pulling back slightly from its highs near $5,400, this could be an opportunity to establish bullish positions with defined risk, such as call spreads, betting on a move towards the all-time highs. Buying outright calls is becoming expensive due to the high implied volatility, making spreads a more capital-efficient approach. We saw a similar dynamic during the initial stages of the Iraq War in 2003, when gold rallied significantly on war fears before consolidating as the conflict’s duration became more apparent. The key variable now is the stated four-week timeline for the military campaign, which could create a “buy the rumor, sell the fact” scenario. Any sign of de-escalation could trigger a sharp, albeit temporary, pullback in gold prices. The surge in WTI crude oil above $70 a barrel directly threatens to increase inflation, which complicates the Federal Reserve’s path forward. Shipping data shows that insurance premiums for oil tankers transiting the Strait of Hormuz have quadrupled in the last 48 hours, signaling that markets are pricing in a severe and prolonged supply disruption. This sustained energy price shock will likely keep inflation sticky, further supporting gold’s appeal. All eyes will now be on this week’s Nonfarm Payrolls report for clues on the Fed’s next move. After the ISM Prices Paid component jumped to 70.5, the market is less certain about the timing of rate cuts that we had anticipated for later this year. Fed funds futures now indicate only a 45% chance of a rate cut by June, down from nearly 80% just two weeks ago. Create your live VT Markets account and start trading now.
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