Diplomacy And Strait Of Hormuz
Iran said it has prepared a diplomatic response to the US. Earlier, Donald Trump said strikes on power plants and other civilian sites could follow if Hormuz is not reopened and no deal is reached by Tuesday at 8:00 p.m. Eastern Time. Oil prices pulled back from recent highs but stayed above pre-war levels, keeping inflation and growth worries in view. Expectations that central banks, led by the Federal Reserve, may keep rates higher for longer limited gold’s upside. The ISM Services PMI for March was 54, down from 56.1 in February and below 55 expected. This week includes US CPI and PCE, after last week’s stronger-than-expected NFP report. Technically, gold tried to hold above the 100-day SMA at 4,654, with resistance near 4,800 and the 50-day SMA around 4,944. Below 4,654, support levels cited were 4,350 and 4,100.Ceasefire Outcome Scenarios
Central banks added 1,136 tonnes of gold worth about $70 billion in 2022, the highest annual total on record. Gold often moves opposite to the US Dollar and Treasuries, and can act as a store of value. The current focus is on the US-Iran ceasefire talks, which are creating massive uncertainty for the gold market. We see this as a binary event, meaning gold could either soar or plummet in the coming days depending on the outcome. Traders should therefore be positioned for a major spike in volatility rather than betting on a single direction. If a peace deal is announced, the significant war premium built into gold’s price will likely vanish almost instantly. We saw a similar dynamic when oil prices fell over 5% in a single day after the Iran nuclear framework was agreed upon back in 2015, showing how quickly geopolitical relief can reprice commodities. For traders, this means buying put options or setting up bear call spreads could be a way to profit from a sharp drop toward the $4,350 support level. On the other hand, a failure in negotiations by the Tuesday deadline would likely send gold surging past the $4,800 resistance mark. This bullish case is strengthened by stubborn inflation, with the latest Consumer Price Index (CPI) data showing a 3.5% annual increase, well above the Fed’s target. A strong labor market, evidenced by the recent Nonfarm Payrolls report adding over 300,000 jobs, gives the Federal Reserve very little room to cut rates, which supports gold as an inflation hedge. Given these two extreme possibilities, a long straddle is a strategy worth considering. By purchasing both a call option and a put option with the same strike price and expiration date, a trader can profit from a large price move in either direction. This approach is a pure play on the high-impact news we are anticipating this week. We are also watching oil prices, as they are the main engine of these inflationary pressures. Even if a ceasefire is reached, crude oil holding above $110 per barrel will keep inflation risks alive and complicate the Federal Reserve’s policy decisions. This dynamic creates a confusing picture where a traditional safe-haven asset like gold is caught between geopolitical risk and high interest rates. The technical levels provide clear triggers for derivative plays. A breakdown below the 100-day moving average at $4,654 would be a strong signal to initiate bearish positions. Conversely, a clean break above the recent high of $4,800 would confirm bullish momentum and could be a trigger to buy calls targeting the next resistance level near $4,944. Looking back from the perspective of 2025, we know that strong underlying support for gold came from central banks. They added a record 1,037 tonnes to their reserves in 2023, following an even bigger haul the year before, signaling a long-term strategy to de-dollarize. This suggests that any major price drop from a peace deal might be cushioned as central banks view it as a buying opportunity. Create your live VT Markets account and start trading now.
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