Gold declines to near $4,600 amid escalating Middle East tensions
- Gold price posts modest losses near $4,605 in Monday’s early Asian session.
- Trump casts doubts on Iran peace proposal as details emerge.
- Major central banks' demand might help limit the losses of gold.
Gold price (XAU/USD) trades with mild losses around $4,605 during the early Asian trading hours on Monday. Traders will closely monitor the developments surrounding the ongoing geopolitical tensions. Federal Reserve (Fed) Bank of New York President John Williams is set to speak later on Monday.
Bloomberg reported on Sunday that efforts to mediate an end to the Iran war persisted after US President Donald Trump hinted that Tehran’s latest peace proposal might not be enough to satisfy him. Trump also said that the US will begin guiding some neutral ships trapped in the Persian Gulf out through the Strait of Hormuz beginning Monday.
Meanwhile, an Iranian official warned that US interference in Hormuz will be considered a violation of the ceasefire, adding that the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
Any signs of escalating tensions in the Middle East could have fueled inflation fears and raised the bar for cutting rates. This, in turn, could weigh on the yellow metal. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
On the other hand, major central bank demands might cap the downside for the yellow metal. The Reserve Bank of India (RBI) has focused on "repatriation," bringing over 100 metric tons of its gold back to Indian soil for the third consecutive year. It currently holds approximately 880 metric tons of gold as of end-March 2026.
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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