Gold price (XAU/USD) rises to near $4,815 during the early Asian session on Wednesday. The precious metal attracts some buyers after US President Donald Trump agrees to suspend Iran bombing for two weeks.
Trump revealed in a post on Truth Social late Tuesday that he’d agreed to a two-week ceasefire with Iran on the condition that Iran agree to reopen the critical Strait of Hormuz. A White House official said that Israel has also agreed to the ceasefire.
This action came after Pakistan, a mediator between the US and Iran, requested that Trump grant a two-week ceasefire and extension to a deadline he imposed on Iran to end its blockade of Gulf oil.
An Iranian official stated that negotiations with the US will be held in Islamabad, Pakistan, to finalize details, aiming to confirm Iran’s battlefield achievements politically within a maximum of 15 days. Iran added that the meeting will begin on Friday and may be extended if both sides agree.
Oil prices have surged since the Iran conflict intensified, raising supply concerns. Higher energy costs feed into inflation, leaving central banks with little leeway to cut interest rates. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
Traders will keep an eye on the minutes from the Federal Reserve’s (Fed) meeting in March, which will be released on Wednesday.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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