Gold (XAU/USD) climbed to a weekly high in Asian trading on Monday, rebounding after the US and Iran said they had reached an agreement to end their conflict, which is due to take effect on Friday. President Donald Trump said the US would lift its naval blockade on Iranian ports and that the Strait of Hormuz would reopen once the agreement is signed. Separately, the UK, France, Germany and Italy said they were prepared to lift sanctions on Iran in response to steps on its nuclear programme. Iran’s deputy foreign minister, Kazem Gharibabadi, said the 60-day negotiations would depend on three US commitments: lifting the naval blockade, ending the state of war and military operations, and releasing Iran’s frozen funds. Rate expectations eased. Markets put the probability of a Fed hike in December at nearly 64%, down from 69% last week, according to the CME FedWatch tool. On the daily chart, gold remained below the 100-day SMA and the Bollinger middle band, while the RSI near 42 stayed under its midline. Resistance was seen near $4,415, then around $4,685 and near $4,762, while support sat around $4,142.

Geopolitical Developments and Market Reactions

We see the recent agreement between the US and Iran as a key moment, but the resulting pop in gold is likely fragile. The market is focusing on the reduced probability of a Fed rate hike, now at 64% for December, which supports non-yielding assets like gold. However, the fundamental reduction in geopolitical risk should eventually weigh on safe-haven demand. This de-escalation is already being felt in the energy markets, which directly impacts inflation expectations. WTI crude futures have pulled back by nearly 4% to around $88 a barrel in anticipation of the Strait of Hormuz reopening and sanctions potentially being lifted. Historically, periods of Middle East stability, such as after the initial 2015 JCPOA agreement, have led to sustained lower oil prices. The drop in oil prices supports the view of moderating inflation, aligning with last month’s Core PCE data that showed a slight cooling to a 2.7% annual rate. With less inflationary pressure from energy, the Fed has more room to pause its rate-hiking cycle. This backdrop creates a conflicting scenario for gold, caught between bearish technicals and a more dovish Fed outlook.

Options Strategies and Risk Management

Given this uncertainty, we believe using options to define risk is the most prudent approach. The technical chart suggests rallies toward the $4,415 resistance level are selling opportunities. Traders who believe the geopolitical calm will prevail should consider selling call spreads with a strike price above the $4,762 100-day moving average to collect premium. Alternatively, for those who believe the lower interest rate narrative will dominate, buying debit call spreads could be a tactical play. A strategy like buying the $4,450 call option and simultaneously selling the $4,650 call option for a future expiration date offers a low-cost way to profit from a measured rally. This approach caps both potential profit and loss, which is ideal in the current environment. We should also watch for any signs that the agreement might falter, as Iran has stipulated several conditions for the deal to hold. The CBOE Volatility Index (VIX) has already dipped below 16, reflecting reduced market anxiety, but any negative headlines could cause a rapid reversal. This temporary calm offers an opportunity to structure trades that can benefit if gold remains range-bound or moves predictably in either direction.

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