Gold rose nearly 3% on Wednesday, trading at $4,681 after reaching $4,723. The move came as the US Dollar and US Treasury yields fell.
Axios reported the US and Iran were close to a one-page, 14-point memo, with 30-day talks starting on the Strait of Hormuz and limits on Tehran’s nuclear programme. Oil prices dropped, with WTI down more than 7%.
Gold Rally Drivers
The US Dollar Index fell 0.46% to 98.03. ADP data showed April employment rose by 109,000, the highest gain in 15 months, up from March’s revised 61,000.
St. Louis Fed President Alberto Musalem said policy risks had shifted towards controlling inflation and that rates may need to stay stable for some time. Chicago Fed President Austan Goolsbee said higher productivity could lift spending and inflation, which could mean higher rates.
Markets priced a nearly 93% chance of no rate change at the 17 June meeting, according to Prime Terminal data, and expected no changes for the rest of the year. Traders are watching Initial Jobless Claims and Fed speeches.
Gold faces resistance at $4,700–$4,715, then $4,760, with $4,800 and $4,799 nearby. Support levels are $4,600, $4,500, $4,351, and the 200-day SMA at $4,276.
Looking Ahead
We recall this time in May 2025 when hopes of a US-Iran deal sent gold surging toward $4,700 per ounce. That rally was fueled by a falling dollar and collapsing oil prices as geopolitical risk seemed to fade. In the coming weeks, however, the situation requires a more cautious approach as market dynamics have shifted considerably.
The hawkish Fed commentary we saw in 2025 from officials like Musalem and Goolsbee was a sign of things to come under the new leadership. With April 2026 CPI data still sticky at 3.1% and a solid 195,000 jobs added last month, the Federal Reserve has little reason to cut rates. This “higher for longer” interest rate environment puts a ceiling on non-yielding assets like gold.
Unlike last year when the Dollar Index fell to the 98.00 level, the Fed’s firm stance has since provided a strong floor for the greenback. The DXY is currently trading near 105.50, supported by interest rate differentials with other major central banks. A strong dollar makes gold more expensive in other currencies, which could limit buying interest in the near term.
Given the competing forces of high interest rates and simmering geopolitical tensions, we expect volatility to pick up. Traders should consider using options to define risk, such as buying puts to hedge long positions or using straddles to play a potential breakout in either direction. Implied volatility in gold options has ticked up to 18% from a low of 15% last quarter, reflecting this growing uncertainty.
The optimism surrounding the Iran agreement has since faded, with compliance issues now creating renewed friction in the Strait of Hormuz. Furthermore, new tensions in the South China Sea are keeping the safe-haven appeal of gold alive, providing a floor under the price. This geopolitical risk is the main factor preventing a steeper decline in gold despite the hawkish rate environment.
