Gold (XAU/USD) traded near $4,750 on Thursday, after rising above $4,800 to a three-week high the day before. Price action stayed range-bound as markets tracked strain around the US-Iran ceasefire.
Iran’s Parliament Speaker Mohammad Bagher Ghalibaf said three parts of the ceasefire had been violated after Israeli strikes on Lebanon. Iran says Lebanon is covered by the ceasefire, while the US and Israel say it is not, and Tehran warned it could leave the deal if attacks continue.
Ceasefire Tensions And Market Focus
The first round of US-Iran talks is scheduled for Saturday in Pakistan, aimed at a permanent ceasefire and reopening the Strait of Hormuz. Donald Trump said US forces would remain “in place, and around, Iran” until compliance with a “REAL AGREEMENT”.
Oil prices rebounded, keeping inflation worries in view and complicating the Federal Reserve’s rate outlook. March meeting minutes said “most participants” saw conflict risks weakening labour markets and supporting more cuts, while “many” warned higher oil could keep inflation elevated and support hikes.
Core PCE rose 0.4% MoM in February, with the annual rate at 3.0% versus 3.1%, while Q4 GDP was revised to 0.5% from 0.7%. Friday’s CPI is forecast at 0.9% MoM versus 0.3%, with annual inflation seen at 3.3% versus 2.4%.
Technically, XAU/USD sat above the 100-day SMA at $4,673.84 and below the 50-day SMA at $4,914.57, with RSI at 49.33 and ADX at 29.46. A close above $4,914.57 points higher, while a drop below $4,673.84 points lower.
Options Strategy For Volatility
The current standoff over the US-Iran ceasefire places us in a period of high alert, with gold trading in a tight range ahead of crucial negotiations this Saturday. We see the market coiling for a significant move, as a breakdown in talks could easily send gold surging, while a durable peace agreement would likely see prices fall. This binary outcome makes directional bets risky in the immediate term.
Given this uncertainty, we believe the best approach is to trade the expected volatility itself. The CBOE Gold Volatility Index (GVZ) has already climbed to 17.8 from 15.2 over the last week, showing market tension is building, yet options are not prohibitively expensive. Strategies like long straddles or strangles, which profit from a large price move in either direction, seem particularly well-suited for the coming weeks.
We see the risk as being skewed toward a price spike, especially with Friday’s US CPI report expected to show inflation accelerating to 3.3%. This is compounded by the fact that WTI crude has already reclaimed $112 a barrel this week, putting renewed pressure on the Federal Reserve. We have noted a significant increase in open interest for gold call options with strike prices above $4,950, indicating traders are positioning for a bullish breakout.
Conversely, any surprisingly positive news from the negotiations in Pakistan could quickly deflate gold’s geopolitical risk premium. A confirmed reopening of the Strait of Hormuz would be a major catalyst for a move down, targeting the 100-day moving average support near $4,674. Traders could consider buying puts as a hedge or a speculative bet on a lasting peace agreement.
We must remember the price action from early 2022, when geopolitical events caused sudden and dramatic spikes in gold that were difficult to capture without being pre-positioned. That historical precedent suggests that waiting for confirmation after a headline breaks will be too late. Using options now allows us to define our risk while gaining exposure to the potential for a powerful move driven by either the ceasefire status or inflation data.
