Gold rose on Friday after a flat session, trading near $5,030. It had fallen to about $4,842 on Tuesday, a near two-week low.
Tensions between the US and Iran increased after Donald Trump said he expects clarity on a nuclear deal within 10 to 15 days. Iran and Russia held joint naval drills in the Gulf of Oman, and Iran told the UN it would respond “decisively” to any US military action.
Inflation Data Supports Gold Demand
US data showed firmer inflation, which can support demand for gold as a hedge. Core PCE rose 0.4% month-on-month in December, up from 0.2% and above the 0.3% forecast, while the annual rate increased to 3.0% from 2.8%.
GDP growth slowed in the fourth quarter of 2025. The economy expanded at an annualised 1.4%, down from 4.4% in Q3 and below the 3.0% estimate.
The University of Michigan Consumer Sentiment Index was 56.6 in February, down from 57.3, while the Expectations Index stayed at 56.6. One-year inflation expectations eased to 3.4% from 3.5%, and the five-year measure slipped to 3.3% from 3.4%.
With gold holding firmly above $5,000, we are looking at a market driven by fear. The combination of escalating US-Iran tensions and the stubborn inflation data from late 2025 has created a clear demand for safe havens. This is a primary bullish signal that we cannot ignore in the immediate term.
Options Strategy For Geopolitical Catalyst
The clear 10 to 15-day timeline on the Iran nuclear deal is a critical catalyst for us. This suggests buying short-dated call options to capture potential sharp upward moves is the primary strategy. Historically, we saw a similar pattern in early 2022 when gold surged over 10% in the weeks preceding the conflict in Ukraine as geopolitical risk was priced in.
The surprisingly weak Q4 2025 GDP growth of 1.4% severely complicates the Federal Reserve’s position. Even with high inflation, a slowing economy makes further rate hikes difficult, which is bullish for a non-yielding asset like gold. This environment is reminiscent of stagflationary periods, which have historically been very favorable for precious metals.
We are already seeing this reflected in the options market, with the CBOE Gold Volatility Index (GVZ) recently hitting a 52-week high of 24.5. Furthermore, open interest for out-of-the-money call options, particularly at the $5,200 strike for the March 2026 expiration, has more than doubled in the last week. This indicates that traders are actively positioning for a significant breakout to the upside.
The primary risk to this outlook is a sudden diplomatic breakthrough between the US and Iran. Therefore, using derivatives like bull call spreads can be a prudent way to reduce the upfront premium cost and define risk. This allows us to maintain upside exposure while hedging against a sharp reversal if tensions unexpectedly ease.
