Gold Rises On Geopolitical Deadline
Trump repeated on Tuesday that he could target Iran’s energy and transport infrastructure at 8 p.m. ET if the strait is not reopened. Higher crude oil prices tied to supply worries in the Strait of Hormuz may add to inflation fears. Those inflation concerns could affect expectations for Federal Reserve rate cuts. Gold is often bought during geopolitical risk, but it pays no interest and can face pressure when rates stay high. CME FedWatch data showed futures pricing almost no chance of a move at the April 28-29 FOMC meeting. It also showed a 77.5% probability the Fed will stay on hold through the end of the year. We are seeing gold prices stabilize around the $4,500 mark after the intense volatility we experienced last year. The situation surrounding the Strait of Hormuz, with the US-Iran deadline, pushed gold to its peak of $4,660. That crisis has de-escalated for now, but the market memory keeps a floor under the price.Inflation And Fed Policy In Focus
The spike in crude oil that followed the 2025 Strait closure has had a lasting effect, with WTI crude futures still trading above $145 a barrel. This has kept inflation stubbornly high, with the latest Consumer Price Index (CPI) report showing a 3.8% annual increase, well above the Fed’s target. This persistent inflation is the primary factor influencing central bank policy today. Given this environment, implied volatility on gold options remains elevated. The CBOE Gold Volatility Index (GVZ) is holding near 19, significantly higher than its historical average, reflecting ongoing uncertainty. This makes selling premium through strategies like covered calls on gold miners or iron condors on gold ETFs an interesting, though risky, proposition for generating income. Looking ahead, the Federal Reserve’s stance has become the main driver. While last year the market expected rates to hold steady, the CME FedWatch tool now shows a 65% probability of a 25-basis-point rate cut by the September FOMC meeting to support a slowing economy. This potential shift to a more dovish policy is creating bullish undercurrents for non-yielding gold. For the coming weeks, we should consider using long-dated call options on gold futures to position for this potential rate-cut rally while clearly defining our risk. Buying December $4,700 calls offers exposure to the upside if the Fed does signal an easing cycle. This strategy protects capital if renewed inflation fears delay any planned cuts. At the same time, the high energy prices continue to pressure corporate earnings and economic growth. We can hedge broader portfolio risk by purchasing put options on the S&P 500. This provides a counterbalance in case stagflationary fears take hold and trigger a downturn in equities. Create your live VT Markets account and start trading now.
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