Gold (XAU/USD) stayed under pressure in early European trade on Monday, slipping to around $4,060 after a move that left it near $4,050. The pullback came as uncertainty over US-Iran talks combined with hawkish Federal Reserve expectations, shifting focus to incoming US labour-market signals. The next key test is Thursday’s US Nonfarm Payrolls report.
The US and Iran agreed to halt attacks and plan talks in Doha, Qatar, on Tuesday over the Strait of Hormuz, following several days of exchanges near the waterway. Even so, Iran’s foreign minister said control of the strait lies with Tehran, while an Iranian official warned that attempts to bypass its preferred route would risk “tension and escalation”. Markets have tied any renewed Middle East friction to inflation concerns and a higher-for-longer rates outlook, which can weigh on non-yielding bullion; CME FedWatch puts the probability of a rate hike from as early as September 2026 at nearly 59.7%. Economists expect June payrolls to rise by 114,000, and for the Unemployment Rate to hold at 4.3%.
Downward Pressure on Gold and Trading Strategies
With gold trading near $4,060, we see the immediate pressure as downwards due to easing US-Iran tensions and the prospect of higher interest rates. This environment makes it less attractive to hold non-yielding assets like gold. We are therefore considering buying put options on gold futures, which would profit if the price continues to fall.
This Thursday’s Nonfarm Payrolls (NFP) report is the most critical event this week. A strong jobs number, beating the forecast of 114,000, will likely solidify a September rate hike and push gold lower. Analysis of the Fed’s last rate-hiking cycle in 2024-2025 shows gold prices fell an average of 1.2% in the trading sessions following a significantly stronger-than-expected NFP release.
Market Uncertainty and Volatility Opportunities
The “stand down for now” in the Middle East is fragile, creating an undercurrent of uncertainty. Implied volatility on short-dated gold options is hovering near 17%, a level that seems too low given the binary risk from the jobs report. This suggests that buying straddles or strangles, which profit from a large price move in either direction, could be a prudent strategy to hedge against a surprise outcome.
The market is increasingly pricing in the Fed’s hawkish stance, with the CME FedWatch tool showing a nearly 60% probability of a rate hike by September. This is boosting the US Dollar, with the Dollar Index (DXY) recently hitting a three-week high of 106.15, creating a direct headwind for gold prices. We view this dynamic as a key reason to maintain a bearish bias on the precious metal in the near term.
