Gold rebounds to nearly $4,450 on Middle East de-escalation
- Gold price rises to around $4,440 in Tuesday’s early Asian session.
- Fresh hopes of a de-escalation of the Iranian conflict buoyed traders.
- PBOC has extended its gold buying streak to 16 consecutive months.
Gold price (XAU/USD) recovers some lost ground to near $4,440 during the early Asian session on Tuesday. The precious metal rebounds from a 2026 low near $4,100 after US President Donald Trump decided to back down from his threat to destroy Iran’s power infrastructure, reducing immediate inflation fears.
Bloomberg reported late Monday that Trump was offering Iran a five-day reprieve, pointing to new talks with Tehran he believed could broker a deal that would resolve the conflict. The reversal came after Trump had given Iran until Monday evening New York time to reopen the Strait of Hormuz.
Traders will closely monitor the situation in the Middle East. However, any signs of rising tensions between the US and Iran could fuel concerns over inflation and rising energy prices. This, in turn, could exert some selling pressure on the yellow metal.
“The prospect of higher interest rates as a result of the war could boost government bonds among investors, at the expense of non-yielding precious metals,” market strategists told CNBC.
China’s official gold reserves have reached a record 2,309 tonnes, following a 16-month consecutive buying streak by the People's Bank of China (PBoC). It’s worth noting that higher demand from China could lift the Gold price, as China is the world's largest precious metal producer.
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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