Gold (XAU/USD) was little changed after opening with a gap down, hovering near $4,670 per troy ounce in Asian trading on Monday. The metal remained under pressure as higher energy prices raised inflation risks and reduced expectations for US Federal Reserve rate cuts.
WTI oil opened with a bullish gap, rising about 8.5% and trading near $98.00 per barrel. The move followed renewed tension between the US and Iran.
Strait Of Hormuz Blockade
US President Donald Trump said Washington would begin blockading ships entering or leaving the Strait of Hormuz after US-Iran peace talks in Islamabad failed. US Central Command said forces will blockade maritime traffic entering and exiting Iranian ports from 10 AM ET (14:00 GMT) on Monday.
US CPI data on Friday supported a higher-for-longer policy view. Annual CPI rose to 3.3% in March from 2.4% in February, while monthly CPI increased 0.9% after 0.3%.
Core CPI rose 0.2% month-on-month and 2.6% year-on-year. The figures were reported by the US Bureau of Labor Statistics.
Central banks added 1,136 tonnes of gold worth about $70 billion to reserves in 2022, according to the World Gold Council. It was the highest annual purchase since records began.
Gold Drivers And Market Positioning
Gold often moves opposite to the US Dollar and US Treasuries, and can also move against risk assets such as equities. Lower interest rates tend to support gold, while higher rates can weigh on it.
Given the escalation between the United States and Iran, we are seeing oil prices surge, which directly fuels inflation. This supports the Federal Reserve’s higher-for-longer interest rate stance, especially after last Friday’s hot Consumer Price Index report showed annual inflation at 3.3%. Fed funds futures are now pricing in just a 15% chance of a rate cut before the fourth quarter, a significant drop from last month.
For gold, we are caught between two opposing forces, creating significant volatility. The conflict in the Strait of Hormuz enhances gold’s safe-haven appeal, but the resulting spike in inflation and interest rate expectations strengthens the US Dollar, which pressures the metal. Looking back at the market dynamics of 2024 and 2025, we saw how a strong dollar and high rates could cap gold rallies even during periods of global uncertainty.
This high uncertainty suggests derivative traders should focus on volatility itself rather than a specific direction for gold. We should consider strategies like long straddles or strangles, which profit from a large price move in either direction. The Cboe Gold Volatility Index (GVZ) has likely jumped over 20% in early trading, reflecting the market’s expectation of sharp swings in the coming weeks.
The direct play for us is on energy, as the blockade of the Strait of Hormuz creates a clear supply shock. Call options on WTI futures or on energy-focused ETFs appear attractive as long as this geopolitical tension remains at its peak. Historically, such blockades have caused sustained price increases; for instance, shipping disruptions in late 2024 kept Brent crude above $95 for an entire quarter.
Finally, we must watch the US Dollar’s behavior, as it is a major factor for gold. The current crisis is driving a flight to safety into the dollar, with the Dollar Index (DXY) already testing key resistance levels this morning. A sustained break above the 106.50 level, which we haven’t seen since last November, would signal a powerful headwind that could overwhelm gold’s safe-haven bid.
