Middle East Conflict Escalation
The Iran–Israel conflict entered its seventh day after Iran fired missiles and drones across the Gulf, hitting an oil refinery in Bahrain. Israel continued airstrikes on Tehran, and the US suspended operations at its embassy in Kuwait. Markets are waiting for US data, including Nonfarm Payrolls, with expectations near 59K for February after 130K in January. Retail Sales are forecast to fall 0.3% month-on-month in January after a flat reading previously. The US is due to introduce a temporary 15% global tariff, replacing a 10% rate, after the Supreme Court struck down most earlier levies. Scott Bessent said the tariff could revert within five months as new trade investigations proceed. Gold traded near $5,110, with resistance at $5,134 and support at $5,080. Further levels cited were $5,480, $5,598, and the 50-day EMA at $4,883, with the 14-day RSI at 53.Options Positioning And Risk
Given the conflict in the Middle East entering its seventh day back in early 2025, safe-haven demand is clearly driving the price of gold. With the metal trading above $5,100, we should assume that implied volatility in options markets is extremely high. This is similar to what we saw historically with the CBOE Gold Volatility Index (GVZ), which spiked over 35% in a few weeks during the onset of the conflict in Ukraine in 2022. For those looking to profit from a continued rise, buying outright call options is likely too expensive now. We should consider using bull call spreads to target a move toward the upper channel boundary of $5,480. This strategy defines our risk and lowers the entry cost, which is prudent when prices are already so elevated. On the other hand, the risk of a sudden ceasefire or hawkish Federal Reserve commentary remains a significant threat. To protect against a sharp drop, we should consider buying put options with a strike price below the channel support level of $5,080. This acts as insurance for any long positions we currently hold. The underlying strength of gold is supported by fundamental buying that we saw in the years leading up to 2025. Data from the World Gold Council showed that central banks bought a record 1,037 tonnes of gold in 2023, and this aggressive purchasing continued through 2024. This long-term trend provides a solid floor for the price, even if short-term volatility is high. In the immediate weeks ahead, the most critical data point was the US Nonfarm Payrolls report for February 2025. A number coming in significantly higher than the 59K expectation would likely strengthen the US Dollar and put immediate pressure on gold. A miss, however, would have probably been the catalyst to test the all-time highs above $5,500. Create your live VT Markets account and start trading now.
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