Safe Haven Demand Cools
Gold also weakened as demand for safe-haven assets eased after reports that the US may form a coalition to escort shipping through the Strait of Hormuz. Trump urged the UK, France, China, and Japan to help secure the route, while EU foreign ministers met in Brussels to discuss a possible naval response to the Strait’s effective closure. US Energy Secretary Chris Wright said he expects the conflict to end within “the next few weeks”. He suggested this could allow oil supplies to recover and energy prices to fall. Central banks added 1,136 tonnes of gold worth around $70 billion to reserves in 2022, according to the World Gold Council. This was the largest annual purchase since records began. With Gold pulling back from the $5,000 level, the immediate derivative play is cautious and short-term bearish. The market is currently selling off based on hopes that a multinational naval coalition will secure the Strait of Hormuz and that the conflict will end soon. This suggests that short-dated put options or selling covered calls on gold ETFs could be viable strategies for the next one to two weeks.Managing Event Risk
However, we must recognize the immense risk if this de-escalation narrative fails. About 20% of the world’s total oil consumption passes through the Strait of Hormuz, and any further disruption would cause a severe energy shock. This makes holding purely bearish positions dangerous, as a single negative headline could send gold prices surging again. The key driver here is the impact of energy prices on US Federal Reserve policy, a pattern we saw repeatedly through 2024 and 2025. Persistent inflation from high energy costs is pushing expectations for interest rate cuts further out, strengthening the US Dollar. This environment is a direct headwind for non-yielding gold and supports the current downward price pressure. Despite this, we should not ignore the underlying support for gold from central banks. The massive buying trend we observed from 2022 to 2025, led by institutions like the People’s Bank of China which bought gold for 17 straight months, has established a strong floor. This suggests the current pullback could be an opportunity to purchase longer-dated call options at a lower premium, positioning for a potential re-escalation of the conflict. Given the uncertainty, volatility itself is a tradable asset. The wide gap between the official optimistic statements and the severe on-the-ground risks means implied volatility in both gold and oil options is likely to remain elevated. We remember how quickly markets turned during the initial phases of the Ukraine conflict in 2022, and this situation feels similarly unstable. Create your live VT Markets account and start trading now.
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