Gold fell in North American trading on Monday after reaching $4,706, as prospects of a US–Iran ceasefire weakened. Reports said the US military was preparing for possible strikes on energy targets in Iran, and Iran rejected ceasefire proposals for a 45-day pause backed by Pakistan, Egypt and Turkey.
XAU/USD was at $4,652, with WTI up 1.40% to $113.64 per barrel. The US Dollar Index was back above 100.00 and down 0.19%, while the 10-year US Treasury yield stood at 4.337%.
US President Donald Trump said Iran “can be taken out in one night, might be Tuesday night”. He set April 7 at 8:00 PM ET as the time for action if Iran does not meet US demands, including reopening the Strait of Hormuz.
US data were mixed, with ISM Services PMI at 54 in March versus 56.1 and forecasts of 55, while prices paid rose to 70.7, the highest since October 2022. Nonfarm Payrolls rose 178K versus 60K expected, unemployment edged down from 4.4% to 4.3%, and markets now expect steady Fed rates all year.
Technically, resistance is near $4,700 and support sits at the 100-day SMA of $4,639, then $4,600, $4,553 and $4,500. Above $4,700, levels include the 20-day SMA at $4,755 and $4,800.
Given the high tension around the potential US strikes on Iran, we must be prepared for extreme volatility, especially with the deadline set for this evening. A military conflict would almost certainly cause oil prices to surge, likely well past the current $113 per barrel, as we saw during the 1990 Gulf War build-up when prices more than doubled in three months. This makes long positions in crude oil derivatives, like call options on WTI, an attractive way to trade the immediate risk of escalation.
The situation with gold is more complex, as it is caught between geopolitical safe-haven demand and the headwind of a strong US Dollar. Rising oil is fueling inflation fears, evidenced by the ISM prices paid component hitting its highest level since we were dealing with the inflation spike back in October 2022, yet the dollar’s strength is capping gold’s upside. We should consider options strategies like straddles to play the expected sharp move in gold without betting on the direction, especially as the Gold Volatility Index (GVZ) has likely pushed above 25.
Strong US economic data, particularly last week’s nonfarm payrolls report which showed the unemployment rate at 4.3%, has cemented the view that the Federal Reserve will hold interest rates steady. This supports the US Dollar and puts pressure on non-yielding assets like gold, meaning any rally in bullion may be short-lived if the immediate Iran threat de-escalates. We’re watching the US 10-year Treasury yield, which at 4.337% offers a competitive return against holding gold.
From a technical standpoint, gold’s failure to hold the $4,700 level is a bearish signal, with the next key support at the 100-day moving average around $4,639. A break below this level could trigger further selling, making put options or bearish put spreads on XAU/USD a potential strategy for the coming weeks. However, we must remain nimble, as any confirmed military action could override these technicals and cause a flight to safety that sends gold sharply higher despite dollar strength.
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