Gold fell in early European trade on Friday, dropping below $4,600 after giving back part of Thursday’s rebound. It was set for a second weekly fall and stayed near a one-month low around $4,510.
Inflation worries rose amid Middle East tensions, with US-Iran talks stalled and crude oil prices staying high. This raised expectations that major central banks may take a more hawkish line, which put pressure on non-yielding gold.
Middle East Risk And Dollar Strength
Reports described a tougher US stance towards Iran, with continued strain near the Strait of Hormuz and the risk of more US military action. Safe-haven flows supported the US Dollar, which added headwinds for gold.
The Federal Reserve kept rates unchanged, but the decision had an unusually high number of dissents. US PCE inflation was hotter, and GDP growth improved, supporting the view that policy could stay restrictive for longer.
Even so, expectations for at least one Fed rate cut in 2026 rose from the prior day, which capped Dollar strength and offered some support to gold. Focus turns to US data including the ISM Manufacturing PMI, alongside Middle East headlines.
Technically, a move above $4,600 prompted short-covering, but gains stalled near $4,650 and the 38.2% Fibonacci level. Resistance is near $4,651 and $4,696, while support is around the 100-hour SMA near $4,624, then $4,595 and $4,505–$4,500.
Downside Pressure And Trading Approach
With gold falling below $4,600, the immediate pressure is clearly to the downside. The strong US dollar, bolstered by geopolitical tensions in the Middle East, is acting as a major headwind for the metal. This dynamic suggests that any rallies in gold may be short-lived opportunities to initiate bearish positions.
The latest jobs report from April showed a stronger-than-expected 215,000 new jobs, with wage growth holding at 3.9% year-over-year. This data reinforces the view that the Fed has little reason to rush into cutting rates. Consequently, Fed funds futures are now pricing in only a 55% chance of a single rate cut by year-end, down from 70% just a month ago.
Considering the downward pressure, we see traders looking at buying put options to hedge or speculate on further declines. A move towards the one-month low around $4,510 seems plausible if the upcoming ISM Manufacturing PMI also points to economic resilience. This strategy offers a defined risk compared to shorting futures directly in such a volatile environment.
However, the situation in the Strait of Hormuz remains a wildcard that could spark a sudden flight to safety into gold. Implied volatility in gold options has ticked up to an 8-week high of 18%, reflecting this uncertainty. Traders anticipating a sharp price swing, regardless of direction, might consider long straddle strategies to profit from a breakout.
We saw a similar pattern in late 2025 when tensions previously flared up in the region. Gold initially dipped on dollar strength before rallying over 4% in a single week once the conflict escalated directly. This historical precedent suggests that simply being short gold is a risky position without protection against a sudden reversal.
For those with a moderately bearish outlook, a bear put spread could be an efficient approach. One might buy a put option with a strike price near $4,595 and simultaneously sell a put with a lower strike, perhaps around $4,510. This structure profits from a move down to the recent lows while capping both the potential profit and the initial cost.
