Regional Tensions Support Safe Haven Demand
Also on Tuesday, Mohsen Rezaei, a senior military adviser to Iranian Supreme Leader Mojtaba Khamenei, said the war would continue until Iran receives full compensation for damage it says it has suffered. Continued uncertainty in the region has supported demand for gold as a safe-haven asset. At the same time, Middle East conflict has lifted energy prices and reduced expectations for US interest rate cuts. Reduced chances of rate cuts can weigh on non-yielding gold, as higher yields may favour government bonds over precious metals. We should recall the extreme volatility during the 2025 US-Iran conflict, where gold swung wildly between safe-haven buying and fears of higher interest rates. Given the lingering uncertainty, traders could consider long strangles, buying both an out-of-the-money call and put option. This strategy would profit from another large price move in either direction, without betting on which way it will go. The memory of gold’s worst weekly performance since 1983 during that conflict underscores the importance of volatility. Today, the Cboe Gold Volatility Index (GVZ) is hovering around a more subdued 18, significantly lower than the spikes we saw in 2025. This relatively cheap implied volatility makes purchasing options, such as protective puts against long positions, a more affordable hedging strategy.Yields Energy And Derivative Hedges
The conflict last year pushed up inflation expectations, and we are still seeing the consequences in the bond market. The US 10-Year Treasury yield is holding firm near 4.5%, making non-yielding gold less attractive as an investment. We must watch for any further rise in yields, which could be a trigger to initiate bear call spreads to bet on a cap for gold prices. Energy prices remain a key factor stemming from those tensions, with WTI crude oil still elevated at around $95 per barrel. Since higher energy prices can fuel inflation and pressure the Fed to maintain higher rates, this acts as a drag on gold. We can use derivatives on oil as a hedge or a leading indicator for pressure on the yellow metal. Create your live VT Markets account and start trading now.
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