Gold fell below $4,700, trading near $4,680 in early Asian dealings on Monday. The move came as the Middle East conflict continued and traders awaited the US Federal Reserve interest rate decision on Wednesday, with no change expected.
Peace talks linked to the Iran war were reported as stalled. US President Donald Trump told Jared Kushner and Steve Witkoff to skip a trip to Pakistan, which is mediating talks, and said Iran “offered a lot, but not enough”, while Iranian President Masoud Pezeshkian said Iran would not enter “imposed negotiations under threats or blockade.”
Middle East Tensions And Gold Prices
Israeli Prime Minister Benjamin Netanyahu said he ordered the military to “vigorously attack” what he called Hezbollah targets in Lebanon, according to the BBC. Higher tensions have supported crude oil prices, adding to inflation concerns and reducing the case for lower rates, while gold offers no interest.
The Fed is expected to keep rates unchanged at its April policy meeting, with attention on the press conference for guidance on energy costs and the rate outlook. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual purchase on record, according to the World Gold Council.
Looking back at the slump in 2025 when stalled Iran peace talks pushed gold below $4,700, we see a similar pattern of geopolitical tension influencing prices today. With gold currently trading near $4,850, uncertainty around new diplomatic efforts is keeping volatility elevated. We should consider that any breakdown in these talks could trigger a sharp move higher, while progress could see a rapid sell-off.
The upcoming Federal Reserve meeting in May is the key event we’re watching. The latest March CPI data, which came in hot at 3.6%, has dampened hopes for an early rate cut. CME FedWatch futures now price in less than a 15% chance of a rate cut before the third quarter, suggesting headwinds for non-yielding gold.
Options Strategies For Elevated Volatility
Given these conflicting forces, we believe buying straddles or strangles on gold futures could be a prudent strategy. This allows us to profit from a large price swing in either direction, whether from a hawkish Fed surprise or a renewed escalation in the Middle East. Implied volatility is high but may still be underpricing the risks over the next several weeks.
For those with a more bearish view, a bear put spread offers a defined-risk way to position for a drop towards the $4,750 level. However, we must remember the underlying support from central banks, which just added a net 290 tonnes in the first quarter of 2026 according to the World Gold Council. This consistent buying could put a floor under any significant price decline.
We are also closely monitoring the US Dollar Index, which has been consolidating around the 105.50 mark for the past two weeks. A decisive break higher, driven by a hawkish Fed, would likely pressure gold prices significantly. Conversely, any sign of economic weakness that pushes the dollar down would be a strong tailwind for gold.
