Geopolitical Signals Drive Near Term Volatility
Fars said there were no direct US-Iran contacts, including via intermediaries. IRNA reported Iran said its position on the Strait of Hormuz and terms to end the war were unchanged, and it had not replied to messages about US requests for talks. Over the weekend, Trump said Iran’s power systems could be targeted if the Strait was not reopened within forty-eight hours. Iran warned it could hit US and Israeli energy, IT, and desalination sites. Markets have removed expectations for Federal Reserve rate cuts this year. Higher rates tend to weigh on non-yielding gold. Technically, gold bounced near the 200-day SMA at $4,095, while trading below the 100-day and 50-day SMAs. RSI is near 26 and resistance sits near $4,500, then $4,600, with $4,970 and $5,000 above; support is $4,000.Central Bank Demand Underpins Long Term Support
Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest on record, World Gold Council data show. Gold often moves opposite to the US Dollar and Treasuries, and can react to geopolitics, inflation, rates, and risk appetite. The temporary five-day pause in hostilities introduces significant uncertainty, and we should expect volatility to remain extremely high. The Gold Volatility Index (GVZ) has already spiked over 30% in the last week, reflecting trader anxiety over the binary outcome of these talks. This environment suggests that simple directional bets are risky, and strategies that profit from large price swings could be more appropriate. With the situation in the Strait of Hormuz unresolved, any breakdown in discussions could cause a rapid price surge back toward the $5,000 mark. We saw a similar dynamic during the initial phases of the Black Sea conflict in 2022, where safe-haven demand quickly overshadowed all other factors. Traders should therefore consider holding or buying call options to protect against a sudden escalation and a sharp rally in gold. Conversely, if de-escalation holds and the focus shifts back to the economy, gold faces strong headwinds from hawkish central banks. Last week’s producer price index data showed core inflation running at a stubborn 4.1% annually, reinforcing the Federal Reserve’s “higher for longer” stance. This makes holding non-yielding gold expensive and could push prices back down to test the $4,100 support level, justifying puts for downside protection. The technical picture confirms this tension, with gold caught between its long-term support at the 200-day moving average and significant overhead resistance around $4,600. This defined range makes options strategies like strangles, which involve buying both an out-of-the-money call and put, particularly useful. Such a position would profit from a significant breakout in either direction once the five-day deadline expires. We must also watch the price of crude oil, which is the primary driver of current inflation fears. West Texas Intermediate (WTI) futures, despite pulling back to $135 a barrel, remain well above the 2025 average of $110, keeping pressure on global economies. A failure to reopen the Strait of Hormuz would likely send oil prices soaring, further complicating central bank decisions and supporting gold as an inflation hedge. Underneath the short-term noise, the long-term trend of central bank buying provides a solid foundation for gold prices. We remember central banks adding a record 1,136 tonnes in 2022, and preliminary World Gold Council data for 2025 shows they continued to be strong net buyers, accumulating over 950 tonnes. This consistent demand from official sources should limit the extent of any deep, sustained sell-off in the coming weeks. Create your live VT Markets account and start trading now.
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