Gold (XAU/USD) steadied near $5,350 after volatile Asian trading, staying close to its highest level since late January, reached on Monday. Demand rose after weekend events increased risk aversion.
The US and Israel launched a coordinated strike on Iran that killed Supreme Leader Ayatollah Ali Khamenei. Iran’s IRGC Navy then announced the closure of the Strait of Hormuz, raising concerns about a longer conflict in West Asia.
Market Reaction And Dollar Dynamics
After the initial move, some traders took profits while waiting for further news. A softer US Dollar, after reaching its highest level since 23 January, and expectations of more US Federal Reserve rate cuts supported gold.
US data due this week includes the ISM Manufacturing PMI on Monday, the ADP private jobs report and ISM Services PMI on Wednesday, and the Nonfarm Payrolls report on Friday. Market attention remains on geopolitical developments and their effect on risk sentiment and demand for gold.
Technically, last week’s break above $5,200 and Monday’s rise kept the upward bias in place. MACD stayed positive, while the RSI read 68.88.
Resistance sits near $5,390 and a move above $5,400 is watched for follow-through. Support levels are cited at $5,260, $5,210, and then $5,180.
Derivatives Positioning In High Volatility
The dramatic escalation in West Asia has fundamentally changed the trading environment, pushing volatility to levels we haven’t seen in over a year. The VIX, a key measure of market fear, surged over 45% during last week’s trading to sit above 32, meaning options premiums are now significantly more expensive. Derivative traders should therefore favor strategies like credit or debit spreads to offset the high cost of implied volatility.
Given the strong bullish momentum, a near-term bull call spread is a prudent way to position for a move toward the $5,400 resistance level. For example, buying the $5,360 call option while simultaneously selling the $5,410 call option caps potential profit but significantly reduces the initial cash outlay. This defines your risk in an environment where sharp reversals are possible on any de-escalation news.
We must recognize that this is now a macro-driven safe-haven rally, similar to what we saw in early 2022 when geopolitical conflict in Eastern Europe pushed gold up nearly 10% in under a month. The closure of the Strait of Hormuz, a chokepoint for nearly 20% of the world’s daily oil supply, has already sent WTI crude futures above $110 a barrel. Using gold derivatives, such as buying long-dated call options, is now essential to hedge broader equity portfolios against a sustained risk-off shock.
The market is also increasing its bets on more aggressive Federal Reserve interest rate cuts to cushion the economy from this geopolitical event. Futures markets, according to the CME FedWatch Tool, are now pricing in a 75% probability of a rate cut by the May meeting, up from just 50% two weeks ago. This expectation of lower rates further supports non-yielding gold and could cushion any pullbacks.
While this week’s US Nonfarm Payrolls (NFP) report is important, it will be secondary to geopolitical headlines. Any news regarding military movements, diplomatic talks, or further supply chain disruptions will have a much greater impact on gold’s price than the employment data. Traders should be prepared for headline-driven volatility to override technical signals and economic calendars.
