Gold tumbles below $5,150 on profit-taking, US Dollar strength
- Gold slumps to around $5,140 in Wednesday’s early Asian session.
- Some profit-taking and renewed US Dollar demand weigh on the Gold price.
- New round of US-Iran talks will be held on Thursday in Geneva.
Gold price (XAU/USD) tumbles to near $5,140, snapping the four-day winning streak during the early Asian session on Wednesday. The precious metal loses momentum amid some profit-taking and a stronger US Dollar (USD). Traders will closely monitor the US President Donald Trump's State of the Union address on Wednesday for clarity on fiscal policies.
After reaching multi-week highs, traders start booking their profits, weighing on the yellow metal. Furthermore, hawkish comments from the US Federal Reserve (Fed) officials underpin the Greenback and drag the USD-denominated commodity price lower. Boston Fed President Susan Collins said on Tuesday that interest rates are likely to stay unchanged “for some time” as recent economic data shows an improvement in the labor market, while risks to inflation remain, per Bloomberg.
However, the potential downside for precious metals might be limited due to uncertainty over US trade policy and heightened tensions in the Middle East. The US Supreme Court on Friday struck down US President Donald Trump’s tariffs. Trump said on Saturday he would raise a temporary tariff from 10% to 15% on US imports from all countries, the maximum level allowed under the law, raising confusion about US tariffs.
The US and Iran are expected to meet for a further round of talks in Geneva on Thursday in a sign that Trump’s administration believes Tehran is making serious proposals to dilute its stockpile of highly enriched uranium and show it is not seeking a nuclear weapon.
Iranian foreign minister Abbas Araghchi said that he thought there was still a good chance of finding a diplomatic solution. Nonetheless, any signs of rising tensions between the US and Iran could boost a traditional safe-haven asset such as Gold in the near term.
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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