Gold posts modest gains above $5,050 as US-Iran tensions persist despite strong labor data
- Gold price trades with mild gains near $5,060 in Thursday’s early Asian session.
- Trump told Netanyahu that Iran's nuclear talks must continue.
- US NFP rose by 130,000 in January, Unemployment rate fell to 4.3%.
Gold price (XAU/USD) trades in positive territory near $5,060 during the early Asian session on Thursday. The precious metal edges higher despite stronger-than-expected US employment data. The release of the US Consumer Price Index (CPI) inflation report will take center stage later on Friday.
The rally of the yellow metal is bolstered by safe-haven demand amid uncertainty and tensions between the United States (US) and Iran. US President Donald Trump said he insisted talks with Iran continue during a meeting with Israeli Prime Minister Benjamin Netanyahu. Trump also warned that he may take action against Tehran if a nuclear deal is not reached.
US Nonfarm Payrolls (NFP) increased by 130,000 in January, above the market consensus of 70,000, according to the Bureau of Labor Statistics on Wednesday. This figure was an improvement over December, which saw a gain of 48,000 after a slight downward revision.
Meanwhile, the Unemployment Rate edged lower to 4.3% in January from 4.4% in December, below the forecast to stay unchanged at 4.4%. The upbeat report provides some relief to concerns about the state of the US labor market, which could lift the US Dollar (USD) and weigh on the USD-denominated commodity price.
Federal Reserve (Fed) Bank of Kansas City President Jeff Schmid said on Wednesday that the central bank needs to keep rates at restrictive levels to continue putting downward pressure on inflation and added he’s not seeing many indications of restraint in the economic data.
Traders will keep an eye on the US CPI report on Friday, which might offer some clues about the interest rate path. The headline and core CPI are expected to show a rise of 2.5% YoY in January. Any signs of softer inflation could reduce the chance that the US central bank will see a need to cut interest rates again by midyear. This could undermine the non-yielding asset, such as Gold.
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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