Gold (XAU/USD) climbed in early Asian trading on Tuesday, hovering near $4,575 and holding above $4,550 as the US Dollar (USD) softened. The move came as markets weighed prospects for US-Iran talks after President Donald Trump said negotiations over an interim arrangement to extend a ceasefire and reopen the Strait of Hormuz were “proceeding nicely”. He also urged Saudi Arabia, Qatar, Pakistan, Turkey, Egypt and Jordan to join the Abraham Accords, as diplomacy around Iran continued.
Unresolved issues between the US and Israel remain in focus, including whether shipping through Hormuz would be granted free passage and the timetable for unfreezing billions of dollars of Iranian funds. In parallel, attention is turning to Thursday’s US April Personal Consumption Expenditures (PCE) Price Index release, where firmer inflation could strengthen expectations of a US Federal Reserve (Fed) rate increase and pressure dollar-denominated commodities. Separately, central banks added 1,136 tonnes of gold worth around $70 billion to reserves in 2022, according to the World Gold Council, the largest annual purchase on record.
Market Sentiment and Key Events
We are seeing gold hold its ground near $4,575, driven largely by optimism around US-Iran peace talks which is putting pressure on the US Dollar. This diplomatic momentum is the key factor influencing the market this week. The potential for a deal that reopens the Strait of Hormuz could also keep oil prices in check, further easing inflationary pressures.
The upcoming Personal Consumption Expenditures (PCE) report on Thursday is the next major hurdle. We are watching this closely, especially after the latest CPI report for April showed core inflation moderating to an annual rate of 3.2%, slightly below expectations. This reinforces the market’s view that the Federal Reserve may be positioned to make a rate cut later this year from its current level of 4.50%.
For the immediate term, the implied volatility on weekly gold options suggests a significant price swing following the PCE release. We believe traders could consider straddles to capitalize on this expected volatility, as a surprise in either direction could trigger a sharp move. A stronger than expected inflation reading would likely strengthen the dollar and could quickly send gold back towards the $4,500 support level.
Outlook, Positioning, and Risk Management
Looking at the broader trend, the fundamental support for gold remains strong. Recent data from the World Gold Council confirmed that central banks continued their aggressive purchasing in the first quarter of 2026, adding another 290 tonnes to global reserves. This consistent demand from official sources provides a solid floor under the market and limits the potential for a deep correction.
Given the constructive backdrop of a potentially weaker dollar and strong central bank demand, we are looking to maintain our bullish bias. We are considering rolling our existing long positions into call options with later expiration dates. This would allow us to participate in further upside if an Iran deal materializes in the coming weeks.
However, we must respect the risk of a reversal if geopolitical talks falter. The current high price makes gold vulnerable to sharp pullbacks on any negative news. Therefore, we are holding a small number of out-of-the-money puts as a low-cost hedge against our core long positions.
