Gold rose for a second day on Thursday as demand increased during the Middle East war. US and Israeli strikes in Iran, and Iranian missile and drone attacks across the region, continued the crisis. A US submarine reportedly sank an Iranian warship off Sri Lanka. US Defence Secretary Pete Hegseth said it was the first such attack on an enemy since World War II, and the campaign entered its sixth day. Gold demand also grew as the US Dollar weakened, which makes dollar-priced Gold cheaper for non-US buyers. The New York Times, cited by Reuters, reported Iran’s Ministry of Intelligence signalled the CIA about possible talks, but Tehran later denied it. The US is set to impose a temporary 15% global tariff, replacing a 10% rate introduced after the Supreme Court invalidated most earlier levies. Treasury Secretary Scott Bessent said the rate could return to earlier levels within five months as new trade probes proceed. Higher oil and gas prices raised inflation concerns and reduced expectations for Federal Reserve rate cuts. The US 10-year Treasury yield rose for a fourth session to 4.11%. Gold traded near $5,160 and held above $5,150, staying in an ascending channel. The nine-day EMA is $5,163, the channel support is $5,070, the 50-day EMA is $4,874, resistance is $5,470, and the record high is $5,598 from 29 January; the 14-day RSI was in the mid-50s. Central banks added 1,136 tonnes of Gold worth about $70 billion in 2022, the highest on record. Gold often moves against the US Dollar and US Treasuries, and can rise when interest rates fall. Given the ongoing conflict and its impact on markets, we should anticipate continued high volatility in gold. With the gold volatility index (GVZ) surging to levels we haven’t seen since the banking turmoil of 2023, buying call options will be expensive. Therefore, traders should consider using call spreads to bet on further upside while managing the high cost of premiums. A potential strategy involves buying an April call option with a strike price just above the current market, perhaps around $5,200, and simultaneously selling a call with a strike near the channel’s upper boundary around $5,450. This approach lowers the initial cost and provides a solid potential return if gold continues its ascent as the crisis unfolds. It effectively trades unlimited upside for a higher probability of profit. We must remain cautious about the risk of a sudden de-escalation, as hinted by conflicting reports of peace talks. A swift resolution could trigger a sharp sell-off in gold, similar to the 4% pullback we saw in a single week in late 2024 following ceasefire hopes in Ukraine. To protect against this, holding some cheap, out-of-the-money put options could serve as a valuable hedge for long positions. The renewed inflation fears, fueled by surging energy prices, are a significant headwind. Looking at the fed funds futures market, traders have significantly dialed back expectations for a rate cut in the second quarter, with the probability now sitting below 30% from over 70% at the start of the year. This, along with rising Treasury yields, could cap gold’s rally if the conflict’s safe-haven appeal begins to fade. However, the underlying support for gold remains strong due to persistent central bank buying. We’ve seen this play out over the last year, as World Gold Council data showed central banks added another 1,037 tonnes to their reserves in 2025, marking the second-highest year on record. This trend provides a solid floor under the price, suggesting any dips caused by de-escalation may be seen as buying opportunities by these large institutions.

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