Gold fell during the European session to about $4,580, close to Friday’s swing low. Markets are pricing in higher inflation from Middle East energy risks, which can support tighter central bank policy and reduce demand for a non-yielding asset.
The US announced “Project Freedom” to guide ships through the Strait of Hormuz and warned of force if the route is disrupted. Iranian officials said US involvement would breach the ceasefire, while the IRGC said renewed hostilities are likely, keeping oil prices supported.
Rising Inflation And Rate Expectations
US data released last Thursday showed inflation accelerated in March, adding to expectations that US rates may stay unchanged well into next year. The Federal Reserve held rates at 3.50%–3.75%, with three dissents, the highest number since 1992.
Minneapolis Fed President Neel Kashkari said a prolonged Iran conflict raises inflation risks and could damage the economy, and he cited the possibility of higher rates. A firmer US Dollar also weighed on gold, while attention turns to this week’s US data, including Friday’s Nonfarm Payrolls.
Technically, the 1-hour MACD is below zero and the RSI is 49.60. Key levels include support near $4,600 and $4,512.28, with resistance at $4,650.47, $4,655.61, $4,699.88, $4,744.15, $4,807.19, and $4,887.48.
We can see that the concerns from last year about hawkish central banks weighing on gold were well-founded. Those fears were centered on geopolitical tensions fueling inflation, forcing the Federal Reserve to reconsider its accommodative stance. Looking back at the situation in 2025, the Fed was holding rates around 3.75% with notable dissent among policymakers.
As of today, May 4, 2026, that hawkish shift has fully materialized, with the current Fed funds rate holding firm in the 5.25%-5.50% range. Recent economic data confirms this necessity, as the latest Consumer Price Index (CPI) report for April 2026 showed inflation remains persistent at 3.4%. This environment continues to support a strong U.S. dollar and puts pressure on non-yielding assets like gold.
Implications For Gold And Positioning
The geopolitical risks from 2025 have not vanished but have simply evolved. Continuing instability in the Middle East provides a floor for crude oil prices, with WTI futures consistently trading near the $80 per barrel mark throughout early 2026. This sustained energy cost feeds into the inflation that justifies the Fed’s high-for-longer rate policy, creating a difficult headwind for gold.
For derivative traders, this outlook suggests positioning for further gold weakness in the coming weeks. Buying put options on gold futures (GC) or a gold-tracking ETF provides a straightforward way to profit if gold breaks down toward the key support levels identified last year near $4,510. With broad market volatility, as measured by the VIX index, remaining subdued below 20, the cost of purchasing these options is not prohibitive.
A more defined strategy for a gradual decline could involve using bear put spreads. For example, a trader might buy a June $4,550 put and simultaneously sell a June $4,500 put to lower the initial cost. This position would profit from a move below $4,550, aligning with the fundamental view that the path of least resistance is to the downside.
However, we must also consider the risk of a sudden geopolitical flare-up, which could trigger a safe-haven rally in gold, overriding the interest rate narrative. To hedge against this possibility, traders could purchase cheap, far out-of-the-money call options. This acts as a low-cost insurance policy against a sharp, unexpected reversal to the upside.
