Gold price (XAU/USD) attracts some buyers to near $5,330 during the early Asian session on Monday. The precious metal holds positive ground after reaching $5,420 in the previous session, bolstered by safe-haven flows. Traders will take more clues from the Fedspeak later on Tuesday.
The United States (US) and Israel targeted Iran’s top-tier leadership and nuclear infrastructure over the weekend. US President Donald Trump said on Monday that combat operations will continue in Iran until America’s objectives are met. Fears of a wider and prolonged war in the Middle East have triggered a risk-off sentiment in financial markets, boosting a traditional safe-haven asset, such as Gold.
On the other hand, inflation concerns are resurfacing as oil prices rise, leading markets to reduce the likelihood of a Federal Reserve (Fed) interest rate cut. This, in turn, could weigh on a non-yielding asset. Markets largely expect the US central bank to leave the interest rate unchanged until the summer, though US President Donald Trump has pushed for lower rates.
Traders will keep an eye on the Fedspeak later in the day. New York Fed President John Williams, Kansas City Fed President Jeff Schmid, and Minneapolis Fed President Neel Kashkari are scheduled to speak. Any hawkish remarks from Fed officials could lift the US Dollar (USD) and drag the USD-denominated commodity price.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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