Gold rose on Thursday to about $4,620, up 1.67%, after hitting a one-month low of $4,510 on Wednesday. It was still set for a second straight monthly fall.
The move followed a weaker US Dollar after Tokyo increased warnings on FX intervention. The US Dollar Index was near 98.28, down 0.68%.
Geopolitical Risk Remains In Focus
Geopolitical risk remained in focus as the United States said it would keep a naval blockade of Iran until a nuclear deal is reached. A plan to reopen the Strait of Hormuz was also being considered, alongside efforts to protect energy flows while maintaining pressure on Iranian ports.
Higher Oil prices supported inflation concerns, which can keep interest rates elevated and weigh on non-yielding Gold. The Federal Reserve held rates at 3.50%–3.75% in an 8–4 vote, the most dissents since 1992.
Markets priced rates staying on hold through 2026, while the chance of a hike by April 2027 rose to 23.8% from 0.8% a week earlier. Jerome Powell’s term ends on May 15, and Kevin Warsh awaits a full Senate vote.
US Q1 2026 growth was 2.0% annualised versus 0.5% previously and 2.3% expected. March PCE rose 0.7% MoM, core PCE rose 0.3% MoM; 2022 central bank gold buying totalled 1,136 tonnes, about $70 billion.
Gold Faces Conflicting Macro Forces
We are seeing gold caught between a weakening US dollar and the significant headwind of persistent inflation. This environment limits the upside, with the market now pricing in a roughly one-in-four chance of another rate hike by this time next year. Traders should therefore view the current bounce towards the $4,685 resistance level with caution.
The upcoming leadership change at the Federal Reserve on May 15 is creating immense uncertainty, and we expect volatility to increase dramatically. We saw a similar period of market turbulence in 2018 when Chair Powell first took over, and with the committee already showing its greatest division since 1992, any policy hints from the new chair will trigger sharp price swings. Derivative traders should be positioned for this, as the market is clearly not settled on the Fed’s future path.
Given this setup, using options to bet on a large move, rather than a specific direction, appears to be the most prudent strategy. Buying a straddle, for instance, would allow a trader to profit from a significant breakout, whether it’s a rally caused by escalating Middle East tensions or a drop below the $4,500 support level on a newly hawkish Fed. The key is to be long volatility itself heading into mid-May.
The ongoing US-Iran conflict provides a powerful historical parallel to the 1970s, a decade when geopolitical turmoil and oil shocks propelled gold prices to record highs even amid rising interest rates. Any further escalation in the Strait of Hormuz could easily trigger a flight to safety, making call options an attractive hedge against a sudden geopolitical flare-up. This risk of a rapid price spike remains underappreciated by the market.
Underneath these macro currents, we see a solid foundation of physical demand that should not be ignored. Following the record-breaking purchases we saw earlier in the decade, central banks continued to be major buyers through 2025 and into this year, with recent World Gold Council data confirming the trend. This strong institutional buying provides a floor, suggesting that any significant dip below $4,500 will be met with substantial demand.
