Inflation Expectations Rising
Inflation expectations for the next year rose to 3.8% from 3.4%. The 5-year inflation outlook stayed at 3.2%. US President Donald Trump said planned strikes on Iran’s energy sites would be delayed. The deadline was extended by 10 days, with a pause stated to run until “April 6, 2026, at 8 P.M., Eastern Time”. The Wall Street Journal reported the Pentagon is considering sending 10,000 more ground troops to the Middle East. The Strait of Hormuz faced restrictions, which kept oil prices elevated. Markets shifted interest rate expectations, with CME FedWatch pricing out any cut this year. It showed a 50% chance of higher borrowing costs by end-2026, versus 2–3 cuts expected before the US-Iran war.Rates Volatility And Gold Levels
US 10-year yields rose to about 4.45%, the highest since July 2025. Gold had been near $4,100 earlier in the week, with resistance at $4,581 and $4,843, and support at $4,300 and about $4,098. Given the conflicting signals, we see the current environment as being defined by high volatility rather than a clear directional trend for gold. The tension between geopolitical safe-haven demand and the pressure from hawkish interest rate expectations makes straightforward long or short positions risky. Therefore, derivative strategies that profit from large price swings should be favored in the coming weeks. The April 6th deadline for strikes on Iran is the key event horizon, and we expect implied volatility to rise significantly as we approach that date. We are looking to buy options straddles or strangles that expire in mid-April to capitalize on a potential price spike, regardless of the direction. Historically, during the onset of major geopolitical events like the conflict in Ukraine in 2022, the VIX volatility index jumped over 80% in a matter of weeks, highlighting the potential for explosive moves. However, the underlying macro trend appears bearish for gold as long as a full-scale war is averted. The surge in oil is fueling inflation fears, which is the primary reason the market has shifted from expecting rate cuts to now pricing in a 50% chance of a hike this year. We saw a similar dynamic in 2022, when surging energy prices caused the 5-year breakeven inflation rate to jump by 25% in a single month, forcing the Fed to become more aggressive. With this bearish tilt in mind, any rallies in gold should be viewed as opportunities to establish positions that benefit from a potential fall. We see the resistance at $4,581 as a key level to watch for selling pressure to re-emerge. Traders could consider buying puts or implementing bear call spreads if the price approaches this area without a fundamental escalation in the Middle East conflict. The persistent strength in the US Dollar, which is benefiting from its own safe-haven status and rising Treasury yields, presents another headwind. While some may use gold to hedge, the dollar is currently the more dominant haven asset. We would therefore use out-of-the-money call options on gold primarily as a cheap tail-risk hedge against a worst-case scenario, rather than as a core portfolio position. Create your live VT Markets account and start trading now.
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