Gold fell more than 2% on Monday as the US Dollar rose and US Treasury yields jumped. XAU/USD traded at $4,521 after a daily high of $4,639.
Risk aversion increased as the end of the ceasefire between the US and Iran approached. The US Navy began Operation Freedom to escort commercial ships through the Strait of Hormuz, and Iran launched attacks against the UAE and used speedboats to restrict sailing.
Geopolitical Tensions And Market Reaction
Donald Trump said “we’ve shut down seven small boats” to disrupt vessel movement. CNN reported that the US and Israel could resume attacks on Iran within the next 24 hours.
US equities fell, oil prices rose, and the US Dollar Index (DXY) gained over 0.25%. The DXY rebound took it from 97.97 to 98.46.
The US 10-year T-note rose six basis points to 4.432%, adding pressure to non-yielding gold. New York Fed President John Williams said policy is “well positioned” and that risks to both parts of the mandate have increased.
Markets put a 96% chance on no rate change at the June 17 Fed meeting, according to Prime Terminal. US Factory Orders rose 1.5% month-on-month in March versus 0.5% expected, up from 0.3% in February.
Options Strategy And Technical Setup
Upcoming data includes ISM Services PMI on Tuesday and US Nonfarm Payrolls. Technical levels include resistance at $4,600, the 100-day SMA at $4,764, and support at $4,500, $4,351, the 200-day SMA at $4,287, and $4,098, with $4,000 below.
Given the surging US Dollar and Treasury yields, the path of least resistance for gold appears to be downward in the short term. We should consider buying put options with strike prices below the $4,500 psychological level, targeting the March low of $4,351. The dollar’s dominance is clear as the DXY index breaks above 98.45, a direct result of the flight to safety.
However, the situation in the Strait of Hormuz is highly unpredictable, creating immense potential for price swings. This suggests that a long volatility strategy, such as buying a straddle on gold futures, could be profitable if tensions escalate or de-escalate suddenly. The VIX has already jumped to over 25 today, reflecting the market’s heightened anxiety not seen since the fourth quarter of 2025.
We saw a similar dynamic during the South China Sea naval standoff in late 2025, where the dollar initially rallied hard on risk aversion. In that instance, gold first dipped before finding its footing as a sustained store of value once the initial shock passed. This historical precedent suggests we should not rule out an eventual reversal in gold’s favor, especially if the conflict widens.
With new Fed Chair Kevin Warsh at the helm, the market is almost certain rates will remain on hold through June, with the CME FedWatch Tool now showing a 96% probability. This is a stark shift from just last month, when futures markets were still pricing in a 30% chance of a summer cut. The 10-year Treasury yield hitting 4.432% makes holding non-yielding bullion an expensive trade right now.
The technical picture shows gold trapped between its 200-day moving average at $4,287 and its 100-day average at $4,764. This defined range makes selling premium an attractive option for us. A bear call spread with a short strike above the $4,700 resistance area could capitalize on the struggling momentum while defining our risk.
