TD Securities commodity strategists expect gold and silver to face further near-term downside. They link this to the Middle East war keeping inflation expectations high and pushing back US Federal Reserve rate cuts.

Higher prices for energy, fertiliser, and chemicals are cited as factors that could make early rate cuts less likely. This, in turn, keeps the opportunity cost of holding precious metals elevated.

Near Term Downside Pressures

The strategists also point to reduced Middle East capital flows into the gold market as an added headwind. They expect conditions to improve once the conflict ends and energy price shocks fade.

They forecast that, after rates move lower and the US dollar weakens, gold could rise again later in the cycle. They project gold returning above $5,000 in the latter part of 2026.

In the near term, we see gold and silver facing a continued correction. The ongoing Middle East conflict is keeping inflation expectations elevated, which will likely delay any plans for the Federal Reserve to cut interest rates. This makes holding non-yielding assets like precious metals less attractive for now.

The March 2026 inflation data, which showed the Consumer Price Index remaining stubbornly high at 3.9%, supports this view. With Brent crude oil consistently trading over $110 a barrel due to supply chain fears, the Fed has little room to ease policy. This high interest rate environment increases the opportunity cost of holding gold instead of income-generating assets.

Options Based Trading Approaches

For traders using derivatives, this suggests buying put options on gold and silver exchange-traded funds could be a viable strategy for the coming weeks. This approach allows for participation in any downside move while defining risk to the premium paid. It is a direct way to position for the expected price pullback.

Another strategy to consider is selling out-of-the-money call options. This can generate income if prices move sideways or drift lower as the market waits for a geopolitical resolution. The absence of typical capital flows from the Middle East into the gold market further supports a stagnant or bearish short-term outlook.

We remember how market sentiment in late 2025 was positioned for significant rate cuts this year, a narrative that has been completely upended by recent events. While the immediate outlook is cautious, we see this as a temporary headwind. We still project that once the conflict subsides and the dollar weakens, gold will return to a path toward the $5,000 level later in 2026.

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TD Securities commodity strategists expect gold and silver to face more downside in the near term. They link this to the Middle East war keeping inflation expectations elevated and pushing back the timing of US Federal Reserve rate cuts.

They report that higher energy, fertiliser, and chemical prices are feeding inflation expectations. This, in turn, may keep interest rates higher for longer and raise the opportunity cost of holding precious metals.

Near Term Risks For Gold And Silver

They also point to reduced Middle East capital flows into the gold market as a further near-term headwind. They expect conditions to improve after the conflict ends, oil prices stabilise, and market expectations for Fed cuts return.

They project that a weaker US dollar and lower rates could support gold later on. Under that scenario, they forecast gold returning above $5,000 in the latter part of 2026.

The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.

For the coming weeks, we see further weakness in both gold and silver as a correction continues. The ongoing conflict in the Middle East sustains high inflation expectations, making it hard for the Federal Reserve to start cutting interest rates. With the latest March 2026 CPI data showing inflation holding at a stubborn 4.1%, the Fed has signaled it will remain on hold through the second quarter.

Trade Setup And Longer Term Positioning

This environment keeps the opportunity cost of holding non-yielding precious metals elevated, pushing capital towards assets that offer a return. We are seeing this play out as Brent crude oil hovers near $115 per barrel, directly impacting energy and transport costs. The reduced participation from Middle Eastern investors, who are focused on regional instability, is also removing a key source of buying pressure from the market.

From a trading perspective, this points toward establishing bearish positions for the next several weeks. We should consider buying put options on gold and silver futures to profit from a potential drop in prices. Looking back, we saw a similar 8% pullback in the spring of 2025 when the market had to reprice delayed rate cuts, providing a clear historical parallel for the current situation.

At the same time, the long-term outlook remains extremely bullish, with a potential for gold to exceed $5,000 once the conflict subsides and the Fed finally pivots. Therefore, a prudent strategy would be to pair short-term bearish trades with the purchase of long-dated call options, such as those expiring in late 2026. This allows us to navigate the expected downturn while being positioned for the significant rally projected to follow.

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Euro area activity and labour market figures for February were weaker than expected but stayed within normal ranges. The euro area unemployment rate rose by 0.1 to 6.2%.

In Germany, industrial employment fell by 2.7% year on year while the unemployment rate held at 4.0%. German retail sales dropped by 0.6% month on month.

France Consumer And Industry Update

In France, real consumer spending on goods decreased by 1.4% month on month, with energy down 2.4% and clothing down 4.0%. Excluding energy, spending was down 0.2% in January and February compared with the fourth quarter.

French industrial production declined by 0.7% month on month in February, while manufacturing output was flat. The January level was revised down by 0.4 percentage points, leaving the first-quarter carry-over slightly negative.

A forecast is maintained for French real GDP growth of 0.1% quarter on quarter in the first quarter. Industrial output data for Spain are due on Thursday and for Italy on Friday, with euro area retail sales for February due on Wednesday.

The economic data points to continued stagnation rather than a sharp downturn. With the latest March 2026 flash inflation estimate coming in at 1.9%, we see increased pressure on the European Central Bank to adopt a more dovish stance. This makes positions sensitive to interest rate changes, such as futures on the EURIBOR, particularly relevant.

Low Volatility Index Strategy

Given the lack of a strong directional trend, we should consider strategies that benefit from low volatility on broad indices like the Euro Stoxx 50. The index has been stuck in a narrow 4,850-5,000 range for weeks, and implied volatility measured by the VSTOXX has dipped to around 14.5. This environment is favorable for selling premium through strategies like iron condors, targeting decay as the market drifts.

Germany’s persistent industrial weakness is a significant drag and warrants a bearish bias on its assets. This sluggishness contrasts with the brief recovery hopes we saw in the second half of 2025 when energy prices stabilized. We should maintain short positions on DAX index futures or consider buying puts as a hedge against further underperformance.

The weakness in French consumer spending, particularly in retail and clothing, highlights specific sector vulnerabilities across the Eurozone. While one-off factors like mild weather are noted, the trend is one of caution among consumers. This suggests looking at put options on consumer discretionary ETFs or specific underperforming retail stocks.

This combination of sluggish growth and the prospect of ECB easing puts downward pressure on the euro. The EUR/USD exchange rate has struggled to hold above the 1.0900 level seen earlier in the year. We believe traders should be positioned for further weakness, using options to limit risk on short euro positions.

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February euro area activity and labour market figures were slightly weaker than expected but remained within typical ranges. Unemployment rose by 0.1 percentage point to 6.2%.

In Germany, industrial employment fell 2.7% year on year, while the unemployment rate held at 4.0%. Retail sales dropped 0.6% month on month.

France Consumer And Industry Snapshot

In France, real consumer spending on goods fell 1.4% month on month. Excluding energy, spending was down 0.2% across January and February versus the fourth quarter.

Energy spending declined 2.4%, and clothing spending fell 4.0%, linked to mild temperatures and changes in sales timing. French industrial production decreased 0.7% month on month, while manufacturing output was flat.

January manufacturing data were revised down by 0.4 percentage points, leaving the first-quarter carry-over slightly negative. The forecast for French real GDP growth in Q1 remains 0.1% quarter on quarter.

Industrial output data for Spain are due on Thursday and for Italy on Friday. Euro area retail sales for February are due on Wednesday, following weaker German and French readings.

Market Implications And Positioning

The Euro area’s soft but resilient economic data suggests a period of stagnation rather than a sharp downturn. We see this reflected in the latest S&P Global Eurozone Manufacturing PMI, which came in at a contractionary 47.1 for March 2026, aligning with the observed weakness in German industrial jobs. This environment dampens prospects for any strong market rally in the coming weeks.

Given the sluggish growth and with March HICP inflation now moderating to 2.3%, the European Central Bank is signaling a more dovish stance. We should anticipate that markets will continue to price in at least one rate cut before the end of the third quarter. This makes positioning for lower future interest rates through derivatives like Euribor futures a key consideration.

For equity indices such as the EURO STOXX 50, the lack of economic momentum points to limited upside for corporate earnings. Recalling how the economic optimism of late 2025 quickly faded, the current data suggests a similar pattern of sideways movement. We should therefore consider strategies that benefit from low volatility and a range-bound market, like selling out-of-the-money call spreads.

This economic outlook also has implications for the currency market, creating headwinds for the Euro. The divergence in policy between a dovish ECB and a potentially more hawkish US Federal Reserve is likely to weigh on the EUR/USD pair. Consequently, we believe buying put options on the Euro could be a sensible hedge against further downside.

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Canada’s Ivey Purchasing Managers Index (seasonally adjusted) fell to 49.7 in March. This was below the forecast of 55.9.

A reading below 50 indicates contraction in activity, while a reading above 50 indicates expansion. March’s result moved the index into contraction territory.

The March Ivey PMI report has delivered a surprise, dropping to 49.7 against an expected 55.9 and falling into contraction territory for the first time in several months. This signals a potential and unexpected stall in the Canadian economy. We must now adjust our strategies for increased downside risk and volatility in Canadian assets over the next few weeks.

This weak economic data directly challenges the Bank of Canada’s recent hawkish tone, which was concerned with services inflation that was running at 3.2% year-over-year in January 2026. Consequently, we see a higher probability of the central bank pausing, or even signaling future rate cuts, which should put downward pressure on the Canadian dollar. We are considering call options on the USD/CAD pair to capitalize on this expected currency weakness.

The outlook for Canadian equities has also soured with this report. A contracting purchasing manager’s index suggests a future decline in corporate earnings and economic activity. From our vantage point in 2025, we recall how a similar PMI slump in mid-2024 preceded a 5% pullback in the S&P/TSX Composite Index, suggesting we should look at buying put options on broad market ETFs.

Given the shift in monetary policy expectations, we anticipate that yields on Canadian government bonds will fall. The market has quickly repriced the odds of a summer rate hike, with derivatives markets now indicating less than a 15% chance, down from over 50% last week. This makes going long on Canadian bond futures an attractive position, as their value will increase if interest rates decline.

The wide miss between the forecast and the actual PMI figure is likely to spike implied volatility across Canadian markets. This presents an opportunity for option sellers who can collect richer premiums, but it also makes buying protective puts more expensive. We will be watching the VIXC, Canada’s volatility index, for signs of sustained fear before adding significant new short positions.

GBP/JPY edged up on Tuesday, with the Yen under pressure as higher oil prices linked to the US-Iran war raised concerns about Japan’s economy. GBP/JPY traded near 211.60, close to one-week highs.

Markets were cautious ahead of a deadline set by US President Donald Trump for 8:00 p.m. Eastern Time (00:00 GMT on Wednesday). Trump said Iran should “make a deal or open up the Strait of Hormuz”, and warned of strikes on Iran’s energy and civilian infrastructure.

Oil Shock Risks For The Yen

Japan’s status as a net energy importer makes it sensitive to rising oil prices, which can lift the import bill and widen trade deficits. Finance Minister Satsuki Katayama said officials are assessing scenarios for the economy and oil stockpiles, taking account of the Middle East situation.

Higher inflation expectations could keep the Bank of Japan on a gradual tightening path, but energy costs may restrain growth and slow policy normalisation. The UK is also a net energy importer, but with lower exposure than Japan.

With UK growth described as fragile and inflation above the Bank of England target, rates are expected to stay higher for longer, with markets pricing up to two rate rises by year-end. Further GBP/JPY gains may be capped by intervention risk, with USD/JPY near 160.

UK S&P Global Services PMI fell to 50.5 in March from 53.9 in February, below the flash 51.2 and the lowest since April 2025. Composite PMI dropped to 50.3 from 53.7. Japan data due Wednesday include February Labour Cash Earnings and the Current Account (n.s.a.) balance.

The immediate focus for us is the immense event risk surrounding the US-Iran deadline tonight. This geopolitical tension is driving volatility, so we should use options to manage our exposure. Buying call options on GBP/JPY allows participation in a potential upside breakout from an oil shock while strictly defining our maximum loss.

Structuring The Trade With Options

The core of this trade hinges on the yen’s vulnerability to soaring energy prices, which heavily impacts Japan’s trade balance. We saw in 2022 how the invasion of Ukraine sent WTI crude prices jumping over 60% in a matter of months, and a direct conflict in the Strait of Hormuz could be far more severe. This dynamic fundamentally weakens the yen against currencies of nations with less severe energy import dependency.

However, we must be extremely vigilant about intervention risk from Japanese authorities. We remember the Ministry of Finance stepping in forcefully multiple times back in 2024 when the dollar-yen rate pushed past the 160 level. Any rapid, speculative gains in GBP/JPY could trigger a similar defensive action to support the yen, making it a dangerous pair to short outright.

On the pound’s side, the picture is complicated by signs of a slowing domestic economy. The recent March Services PMI data, which fell to 50.5, marked the lowest reading since April of last year, pointing towards stagnation. Despite this, with UK inflation still running above target, the Bank of England is widely expected to maintain higher interest rates.

Therefore, a prudent strategy for the coming weeks could involve establishing a bullish stance through debit call spreads on GBP/JPY. This approach allows us to profit from a rise in the pair driven by interest rate differentials and energy dynamics. By selling a higher-strike call against a purchased call, we can reduce our initial cost and cap our potential gains below levels that might provoke an official response from Japan.

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Nordea analysts Jan von Gerich, Tuuli Koivu and Anders Svendsen expect the European Central Bank to focus on inflation rather than growth if the Middle East conflict continues and price pressures rise.

They forecast four rate rises of 25 basis points starting in June. This would take the ECB deposit rate to 3% by October.

Deposit Rate Outlook Through 2027

They expect the deposit rate to stay at 3% until the end of 2027. They also state that the risk is for earlier or larger moves.

They outline an alternative path in which the ECB starts raising rates in April. They also consider a first move of more than 25 basis points in June, while keeping 25 basis points as the most likely starting step.

They link the timing of the first rise to the conflict and energy prices. They link the number and pace of later rises to broader inflation pressures and economic performance, amid higher energy prices, uncertainty, and rising rates.

Looking back at the analysis from 2025, we expected the European Central Bank to begin an aggressive hiking cycle to control inflation. The ECB was indeed forced to prioritize inflation, raising the deposit rate even faster than anticipated to 3.5% by the end of last year. Those rate hikes, which were larger than the four 25bp moves we initially forecast, have successfully cooled demand.

Market Pricing Versus ECB Reality

We are now facing flat GDP growth across the Eurozone for the first quarter of 2026, with recent PMI data from Germany showing a contraction below 48.5. Despite this slowdown, core inflation remains stubbornly high at 3.6%, well above the ECB’s 2% target. This creates a difficult situation where the central bank is hesitant to signal any rate cuts that could refuel inflation.

The futures market is currently pricing in at least two rate cuts by the end of this year, but we see this as overly optimistic given the inflation data. Traders should therefore consider positioning for yields to remain higher for longer, perhaps by using options to bet against a sharp fall in the 2-year German bond yield. Given this uncertainty, implied volatility on EURIBOR options has climbed to levels not seen since late 2025, suggesting strategies that profit from price swings could be effective.

In the swaps market, this divergence between market expectations and central bank rhetoric presents an opportunity. Receiving the fixed rate on 2-year or 3-year swaps could be a profitable trade if the ECB holds rates steady through 2026, defying the market’s dovish bets. This position essentially bets that the current economic weakness will not be enough to force the ECB’s hand in the face of persistent inflation.

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Nordea analysts expect the European Central Bank (ECB) to focus more on inflation than growth as the Middle East conflict continues and price pressures increase. They forecast four 25 basis point rate rises starting in June.

In this forecast, the ECB would raise rates by 25bp at the June meeting and then deliver three more 25bp rises at consecutive meetings. This would take the deposit rate to 3% by October.

Inflation Risks Drive Policy Focus

They expect the deposit rate to stay at 3% through to the end of 2027. They also see a risk of an earlier start or larger moves than in their baseline forecast.

The first rise could come as early as April, or the June rise could be more than 25bp, depending on the price outlook. They link the timing of the first move mainly to the conflict and energy prices, and later decisions to wider inflation pressures and how the economy performs.

With new geopolitical risks pushing energy prices up, we expect the European Central Bank to again prioritize inflation over growth concerns. The recent jump in Brent crude to over $105 a barrel is feeding into broader price pressures, challenging the ECB’s current policy stance. This makes future interest rate hikes a distinct possibility this year, even after the long pause.

Eurostat’s latest flash estimate showed headline inflation for March ticking up to 3.1%, uncomfortably above the 2% target and a reversal of the disinflationary trend seen through 2025. We now forecast a 25 basis point hike at the June meeting, which would be the first change in policy in over a year. This initial step would signal a firm commitment to tackling this new inflationary wave.

Market Pricing And Rate Path Implications

For derivative traders, this means pricing in a more aggressive rate path, with short-term interest rate swaps (SIRS) likely to see upward pressure. We project a series of four 25bp hikes this year, bringing the deposit facility rate to 4.5% by October. Options markets should prepare for higher volatility, especially around ECB meeting dates in June, July, and September.

We then expect rates to remain at that level for the remainder of the forecast horizon until the end of 2027, as the bank ensures inflation is firmly anchored. Looking back at the rapid hiking cycle of 2022 and 2023, we know the central bank can act decisively when inflation expectations are at risk. While a 25bp move in June is our base case, an unexpectedly high inflation print for April could force the ECB’s hand for a larger 50bp hike.

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Sweden’s March flash inflation came in below forecasts. CPIF eased to 1.6% year on year versus a 2.2% market estimate.

CPIF excluding energy fell by 0.3 percentage points to 1.1% year on year, compared with a 1.5% market estimate. The main downward drivers were weaker prices for Food and for Recreation, Sport & Culture.

Inflation Surprise And Key Drivers

Petrol prices pushed in the opposite direction and lifted the headline CPIF measure. Recent signals from the Riksbank had pointed towards a more hawkish stance.

If the weaker inflation readings do not reverse soon, policy may stay unchanged for longer than previously indicated. The article notes it was produced using an AI tool and reviewed by an editor.

We remember how the surprise drop in Swedish inflation back in March 2025 caught the market off guard, with CPIF falling to 1.6% when 2.2% was expected. That unexpected weakness in food and recreation prices was enough to make the hawkish Riksbank second-guess its plans. This created a valuable precedent for how sensitive the central bank is to downside inflation surprises.

Now, on April 7, 2026, we see a similar story unfolding, but with even more conviction. The latest data for March 2026 showed headline CPIF at just 1.4%, far below the consensus forecast of 2.0%. This isn’t an isolated event; it’s backed by the latest statistics from the National Institute of Economic Research showing that Swedish consumer confidence fell to a six-month low in March.

Market Implications For Rates And Sek

This situation signals that the Riksbank’s hands are tied, making any rate hikes highly improbable for the remainder of the year. Derivative traders should consider positioning for a prolonged period of low rates, potentially by receiving fixed on Swedish interest rate swaps. The market is currently pricing in a less than 10% chance of a rate hike in 2026, a number we expect to fall further.

Consequently, this dovish monetary policy outlook will almost certainly weigh on the Swedish Krona. The SEK has already weakened by over 2% against the Euro since the inflation data was released. We believe entering new positions that bet on a weaker Krona, such as buying EUR/SEK call options or selling SEK in the forward market, is a prudent strategy for the coming weeks.

Looking back at the sharp SEK sell-off in the second half of 2024, when the Riksbank signaled a pause far earlier than the ECB, provides a clear historical parallel. That period showed how quickly the currency can depreciate when monetary policy diverges from its neighbors. The current data suggests a repeat performance may be starting.

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Sweden’s March flash inflation was below market forecasts. CPIF slowed to 1.6% year on year, versus 2.2% expected, while CPIF excluding energy fell by 0.3 percentage points to 1.1% year on year, versus 1.5% expected.

The fall was mainly linked to lower prices for food and for recreation, sport and culture. Petrol prices rose and added to the headline CPIF measure.

The Riksbank had recently taken a more hawkish stance. If the weaker inflation readings persist, policymakers may keep rates unchanged for longer than previously indicated.

The article was produced using an AI tool and reviewed by an editor.

We are seeing a significant downside surprise in the March inflation figures for Sweden, with the main CPIF measure decelerating to just 1.6% year-over-year. This reading is well below market expectations of 2.2% and challenges the central bank’s recently hawkish tone. The core measure, excluding energy, fell even more sharply to 1.1%, suggesting underlying price pressures are weak.

This data forces a repricing of interest rate expectations, as the Riksbank is now far less likely to tighten policy in the near term. For traders, this suggests positioning for a prolonged hold by receiving fixed on Swedish interest rate swaps or unwinding any bets on rate hikes for the second quarter. With the policy rate currently at 3.75%, the market is now pushing back the timeline for any potential move upwards.

The Swedish Krona should weaken as a result of these diminished rate hike prospects. We have already seen the EUR/SEK cross jump from around 11.48 to above 11.62 in the wake of the inflation report. Traders should consider strategies that benefit from further SEK downside, such as buying EUR/SEK call options or establishing short SEK positions against currencies with a more hawkish central bank outlook.

Looking back, we remember the aggressive rate-cutting cycle the Riksbank pursued through 2025 to combat slowing growth. The market had been positioning for a shift away from that dovishness, but this weak inflation print puts that narrative on hold. This surprise is a reminder of the disinflationary trends we saw globally in the latter half of last year.

This unexpected data shock will likely boost implied volatility in both rates and FX markets. The uncertainty around the Riksbank’s next meeting in early May creates opportunities for options traders. One could buy volatility through straddles on the SEK to profit from a large move, regardless of direction, as the central bank digests this new information.

The weakness in consumer-facing categories like food and recreation, combined with the latest labor force survey from Statistics Sweden showing unemployment ticking up to 7.8%, paints a picture of a softening domestic economy. This reinforces the view that the Riksbank cannot afford to maintain a hawkish stance. We must now weigh the impact of higher global energy prices against this clear evidence of cooling domestic demand.