Gold rebounds to near $4,500 after US and Iran reach outline ceasefire deal
- Gold price recovers some lost ground to around $4,500 in Friday’s early Asian session.
- The US and Iran have a tentative agreement to extend a ceasefire.
- The US core PCE inflation hit an annual rate of 3.3% in April, as expected.
Gold price (XAU/USD) edges higher to near $4,500 during the early Asian session on Friday. The precious metal rebounds from a two-month low hit in the previous session after reports that the United States (US) and Iran had reached a ceasefire extension agreement.
Bloomberg reported on Thursday that Washington and Tehran have reached a tentative deal to extend a ceasefire by 60 days and launch further talks on Iran's nuclear program, raising hopes the three-month conflict could be nearing a resolution.
US President Donald Trump has yet to agree to the terms. Both countries have previously hailed progress, with Trump emphasizing the US was close to securing an agreement, but the delay has continued.
Data released by the US Bureau of Economic Analysis (BEA) on Thursday showed that the US Personal Consumption Expenditures (PCE) Price Index climbed by 3.8% YoY in April, versus 3.5% prior. This figure came in line with the market expectation.
Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, rose 3.3% YoY in April, compared to 3.2% in March, as anticipated. On a monthly basis, the PCE Price Index and the core PCE Price Index increased 0.4% and 0.2%, respectively.
"The trading gods seem to be intervening in gold today. First, the weak PCE, and now reports of an imminent deal that would open Hormuz, are giving gold a much-needed reprieve," independent metals trader Tai Wong said.
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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