Gold (XAU/USD) eased to around $4,155 in early Asian trading on Monday as markets weighed developments in US-Iran peace talks in Switzerland against a more hawkish US Federal Reserve stance. Over the weekend, US President Donald Trump threatened strikes on Iran if Hezbollah continues attacking Israel, while Iranian negotiators suspended talks in response to the rhetoric, though contacts were said to be continuing. Goldman Sachs now forecasts gold at $4,900 an ounce by December, down from $5,400, after dropping its expectation of a US rate cut this year.
Gold remains a traditional store of value and is widely treated as a safe-haven, as well as a hedge against inflation and currency depreciation. Central banks are the largest holders, and they added 1,136 tonnes worth around $70 billion to reserves in 2022, World Gold Council data show, the highest annual purchase on record. Prices are typically inversely correlated with the US Dollar and US Treasuries, and they can also move opposite to risk assets, with the metal often supported by geopolitical shocks and lower interest rates as a yield-less asset.
Near-Term Headwinds and Volatility Drivers
We see gold trading near $4,155, but the immediate upside appears limited. The Federal Reserve’s hawkish stance is boosting the US Dollar, creating significant headwinds for precious metals. This monetary pressure is directly conflicting with the geopolitical risk premium from the uncertain US-Iran talks.
The strong Non-Farm Payrolls report from two weeks ago, which added 285,000 jobs, gives the Fed plenty of room to maintain its tight policy. Consequently, we’ve seen Fed funds futures completely price out any rate cuts for 2026, now showing a 15% chance of another hike by September. This makes holding a non-yielding asset like gold more expensive for traders.
Given the tensions in Switzerland, we expect sharp, headline-driven price swings in the coming weeks. Implied volatility on gold options has already ticked up to a three-month high of 18.5%, suggesting the market is pricing in a significant move. We believe selling premium through strategies like iron condors could be risky until the diplomatic situation becomes clearer.
Structural Support Amid Geopolitical Turmoil
This environment is reminiscent of the late 1970s, where geopolitical turmoil provided a floor for gold even as the Fed aggressively hiked rates. While the strong dollar is a near-term weight, central bank buying continues to be a powerful long-term support, with the World Gold Council reporting another 85 tonnes were added to official reserves last month. Therefore, we would view any significant dip below $4,000 as a structural buying opportunity, perhaps using long-dated call options to gain exposure.
