Gold drops below $4,700 on stronger US Dollar, Middle East tensions
- Gold price tumbles to near $4,690 in Friday’s early European session.
- A firming US dollar and intensifying tensions in the Middle East exert some pressure on the Gold price.
- Higher demand from major central banks could support the yellow metal.
Gold price (XAU/USD) falls to around $4,690 during the early Asian session on Friday. The precious metal attracts some sellers amid a stronger US Dollar (USD) and elevated oil prices that stoked inflation worries.
The US military said it intercepted two Iranian oil supertankers that tried to evade its blockade as Washington continues to stymie Iran’s shipping and Tehran threatens vessels in the Strait of Hormuz, Bloomberg reported on Thursday. Later in the day, US President Donald Trump said that if Iran doesn’t move the oil, its infrastructure will explode. Iranian officials did not say they had agreed to any extension of the truce, accusing Washington of violating it by maintaining a blockade on Iranian trade by sea.
“Gold continues to take its cues from the oil market, with rising energy costs keeping the risk of near-term dollar strength and elevated inflation in focus,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Oil prices surged this week, reflecting worries over ongoing supply disruptions. Higher crude oil prices can add to inflationary pressures, raising the bar for cutting rates. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
However, demand from major central banks could underpin the yellow metal. Central banks in emerging markets, led by China, Poland, India, and Turkey, continue to aggressively diversify their foreign exchange reserves away from the USD by accumulating gold in 2025 and early 2026. The People's Bank of China (PBoC) added 5 tonnes in March, extending its monthly buying streak to 17 consecutive months.
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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