Gold remained under pressure on Wednesday, with XAU/USD trading around $4,440 after an intraday low near $4,400, the weakest level since March 30. Iran’s State TV said Tehran and Washington had prepared an initial unofficial framework for an MOU under which US forces would withdraw from Iran and lift the naval blockade, while Iran would restore Strait of Hormuz commercial transit to pre-war levels within one month. The US later dismissed the report as “a complete fabrication”, helping the Dollar rebound; the US Dollar Index (DXY) hovered around 99.20 after briefly slipping below 99.00 in the European session, as Donald Trump held a cabinet meeting.
Gold’s tone stayed fragile as Oil-linked inflation risks kept focus on restrictive policy expectations for the Federal Reserve (Fed), alongside resilient US growth and sticky inflation. Traders are awaiting US PCE data on Thursday and further Fed speeches. Technically, XAU/USD sat just above the lower Bollinger Band near $4,422 and remained capped below the 20-period SMA around $4,594; RSI was near 37 and ADX near 22. Resistance was seen at $4,594 then $4,767, while support levelled at $4,422, followed by $4,350 and $4,100.
Headline Risk and Volatility Strategies Dominate Near-Term Outlook
With gold reacting to every headline about the US-Iran situation, the immediate outlook is driven by uncertainty. The conflicting reports create significant headline risk, making simple directional bets dangerous in the very near term. We see this as an environment that favors strategies based on volatility rather than a clear trend.
Inflation, Fed Policy, and Tactical Options Approaches
The bigger story for us remains inflation, which is being fueled by high energy prices. The latest Personal Consumption Expenditures (PCE) report showed core inflation holding firm at 3.8% year-over-year, which is well above the Federal Reserve’s target. This sticky inflation reinforces our view that the Fed will not be in a hurry to cut interest rates.
Given the current Fed Funds Rate is holding at a restrictive 5.50%, the cost of holding a non-yielding asset like gold is high. Fed Funds futures markets are currently pricing in less than a 20% chance of a rate cut in the next three months, supporting a strong US Dollar. This fundamental pressure should continue to weigh on gold prices in the coming weeks.
Therefore, we are looking at buying put options to gain downside exposure, especially if gold breaks below the $4,422 support level. This strategy allows us to profit from a potential move down towards the $4,350 mark while defining our maximum risk. Bear put spreads could also be used to lower the upfront cost of this bearish view.
However, a sudden peace deal could cause a sharp, albeit perhaps temporary, rally. To account for this binary risk, we are also considering straddles, which involve buying both a call and a put option. This position profits from a large price move in either direction, which is exactly what a definitive resolution in the Strait of Hormuz could trigger.
We’ve seen this pattern before, such as during the initial phase of the Ukraine conflict in 2022 when gold spiked on geopolitical fear before selling off as the market refocused on aggressive central bank rate hikes. Any peace-driven rally in gold might face similar headwinds from the underlying hawkish monetary policy. For now, we are watching the technical floor at $4,350, as a break below that level would confirm a stronger bearish leg is underway.
