Gold fell on Friday, set for a second weekly drop, as higher oil prices linked to the US-Iran war lifted inflation concerns and pushed interest-rate expectations higher. XAU/USD traded near $5,040, staying within the $5,000–$5,200 range. The Strait of Hormuz remained effectively closed by Iran’s Islamic Revolutionary Guard Corps since the start of the US-Israeli war against Iran. The IEA said the conflict is causing the largest supply disruption in the history of the global oil market.

Central Bank Expectations Shift

Before the war, markets priced at least two Fed rate cuts this year, but now only about 20 basis points of easing is priced in by December, based on Bloomberg swaps. Markets also fully price an ECB rate hike by July and have raised expectations of a BoE tightening by year-end. The US Dollar Index rose above 100, its highest since November 2025, while the US 10-year yield held around 4.25% near five-week highs. US Core PCE rose 0.4% MoM in January and 3.0% YoY, and Q4 GDP growth was 0.7% versus a 1.4% forecast. On the 4-hour chart, price slipped below the 100-period SMA near $5,163 and tested the 200-period SMA around $5,083. RSI sat near 42, while ADX rose towards 20. The ongoing conflict in the Middle East is fundamentally reshaping the inflation and interest rate landscape for 2026. With the Strait of Hormuz effectively closed, we are seeing a major oil supply shock that is forcing central banks to abandon the dovish pivots anticipated in late 2025. This environment of rising yields and a stronger dollar creates significant headwinds for non-yielding assets like gold. Given the pressure on gold, we should consider positioning for a breakdown below the key $5,000 psychological level. Buying put options with strike prices around $4,900 or $4,850 for April 2026 expiration offers a clear way to profit from a potential new wave of selling. The technical setup on the chart supports this bias, as momentum is clearly fading.

Strategic Positioning Ideas

This situation is reminiscent of past energy crises where geopolitical events led to stagflationary pressures. With West Texas Intermediate (WTI) crude oil now trading above $150 a barrel, a price not seen in over a decade, the risk of demand destruction is rising, as reflected in the recent weak Q4 2025 GDP figures. The CBOE Volatility Index (VIX) has also remained stubbornly elevated above 25, signaling sustained market stress and uncertainty in the weeks ahead. The US Dollar’s strength is a direct result of both its safe-haven appeal and the repricing of Federal Reserve expectations. With the market now pricing out rate cuts for this year, we should maintain long dollar positions, particularly against currencies whose central banks may be slower to react. We can also express a bearish view on bonds by shorting 10-year Treasury note futures, betting that the yield will push beyond the current 4.25% level. For those who believe the geopolitical premium may cool temporarily, selling an iron condor on gold could be an effective strategy. By selling out-of-the-money call options above $5,250 and put options below $4,950, we can collect premium from the current range-bound price action. This is a bet that gold will remain trapped between its safe-haven appeal and the pressure from higher interest rates. Ultimately, the source of this market turmoil is the oil shock itself. As long as the Strait of Hormuz remains a chokepoint, the path of least resistance for crude prices is higher. We should be positioned accordingly by holding or adding to call options on WTI and Brent crude futures to capitalize directly on the ongoing supply disruption. Create your live VT Markets account and start trading now.

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