Gold (XAU/USD) was little changed at about $4,540 in early Asian trading on Thursday, after holding near $4,550. Markets were watching stalled US-Iran talks, threats to the Strait of Hormuz, and the upcoming preliminary US PMI reading for May.
US President Donald Trump said the US was in the “final stages” with Iran, while also repeating that attacks could resume in coming days if Iran does not accept his terms. The April FOMC minutes said most Federal Reserve officials may need to consider rate rises if inflation stays above the 2% target, and the policy rate was kept at 3.5% to 3.75%.
Gold As A Safe Haven
Gold is often used as a store of value and is commonly treated as a safe-haven asset, as well as a hedge against inflation and weaker currencies. It does not depend on any single issuer or government.
Central banks hold the most gold, and the World Gold Council reported they added 1,136 tonnes worth about $70 billion in 2022, the highest annual total on record. Gold often moves inversely to the US Dollar and US Treasuries, and it tends to strengthen when interest rates fall.
We are seeing gold hold steady near $4,540, which presents a complex scenario for trading in the coming weeks. The high price reflects both safe-haven demand from Middle East tensions and the significant pressure from a hawkish Federal Reserve. This balance makes directional bets risky, but it creates opportunities based on potential volatility.
The binary nature of the US-Iran negotiations, swinging between a peace deal and renewed attacks, suggests a volatility spike is likely. We believe using options to trade this uncertainty, such as long straddles, could be effective. This strategy allows a trader to profit from a large price move in gold, regardless of the direction.
Middle East Risk And Volatility
We remember how war risk insurance premiums for oil tankers in the Strait of Hormuz surged by over 300% during the flare-ups back in 2025. A similar disruption now would not only jolt energy markets but would almost certainly trigger a wave of fear-based buying into gold. This historical precedent should inform the potential upside risk for the metal.
On the other hand, the Federal Reserve’s recent minutes create a significant headwind for gold. With the Fed funds rate already at 3.75%, any upcoming data like the PMI report that points to persistent inflation will strengthen the case for another rate hike. This would likely increase the opportunity cost of holding a zero-yield asset like gold and could cap any rally.
Looking back, the sticky inflation we saw through late 2024 and 2025, where the core Consumer Price Index consistently stayed above 3%, has made the Fed extremely sensitive. This history means the market will react sharply to any data suggesting inflation is re-accelerating, potentially punishing gold prices. Therefore, traders should watch inflation-linked derivatives for early warning signs.
Despite these pressures, we must not ignore the strong underlying bid from central banks. Following record purchases in 2022 and 2023, official sector buying remained robust through 2025, with the World Gold Council reporting net purchases of over 1,000 tonnes last year. This consistent demand provides a solid floor under the market, making any significant sell-off a potential buying opportunity.
