Gold climbed more than 3% on Monday after the US and Iran agreed to end their conflict, pushing XAU/USD to $4,351 after touching $4,218 earlier in the session. Risk appetite improved as US equities edged higher, while the US Dollar Index (DXY) slipped 0.23% to 99.57 and lent support to bullion. The deal is set to reopen the Strait of Hormuz and start 60 days of negotiations on Tehran’s nuclear programme, including plans for Iran to dilute highly enriched uranium domestically under a mechanism to be agreed during the talks. Newswires said a Memorandum of Understanding (MOU) is due to be signed on Friday in Switzerland.
Oil prices fell sharply, with WTI down 4.46% to $80.51 a barrel, easing inflation concerns after US consumer and producer readings stayed above the Federal Reserve’s (Fed) 2% target. The Fed delivers its policy decision on Wednesday, its first under Kevin Warsh, as markets also track balance-sheet messaging and the outlook for rates. US Industrial Production slowed to 0.1% in May from 0.9%, while April was revised up to 0.9% from 0.7%. Technical levels cited include $4,400, the 200-day SMA at $4,454 and the 50-day SMA at $4,580; supports sit at $4,300, $4,250, $4,200 and $4,023. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022.
Oil, Gold, and the US-Iran Geopolitical Breakthrough
Given the breakthrough US-Iran agreement, we see the sharp drop in oil prices as the dominant market force for the next few weeks. We are looking to build short positions in crude oil, likely using futures contracts or buying put options. History shows these geopolitical thaws have lasting impact; the lead-up to the 2015 Iran nuclear deal, for instance, contributed to oil prices falling by over 50% in the surrounding year.
The collapse in oil directly weakens the US dollar and eases inflation fears, creating a perfect storm for gold. We believe gold’s rally has further to run and are considering call options to target the $4,454 level. This view is bolstered by strong fundamental demand, as recent World Gold Council data for Q1 2026 showed central banks continued their aggressive buying, adding a net 290 tonnes to their reserves.
Market Positioning Ahead of the Fed and Broader Equity Outlook
This Wednesday’s Federal Reserve meeting is now the critical event, especially as it is the first under new Chair Kevin Warsh. While the market now expects a dovish pivot, the uncertainty of new leadership is high, making volatility plays attractive. The VIX is currently sitting near a low of 13, suggesting options that profit from a large market move in either direction, such as straddles on the SPY, are underpriced heading into the announcement.
While lower energy costs should support equities, we are cautious about chasing the broad market higher at these levels. The S&P 500’s forward price-to-earnings ratio is already elevated above 21, reflecting much of the recent optimism from AI investment. We would rather use derivatives to focus on specific sectors that benefit from lower energy and transportation costs instead of buying broad index calls.
