Gold falls to near $4,650 as Oil surge, US–Iran tensions hit Fed cuts
- Gold declines as rising energy prices boost inflation, dampening expectations for Fed and global central bank rate cuts.
- WTI jumps about 8.5% as US–Iran conflict escalates, raising supply disruption concerns.
- CENTCOM said forces will begin blockading all maritime traffic to and from Iranian ports at 10 AM ET Monday.
Gold price (XAU/USD) moves little after opening at a gap down, hovering around $4,670 per troy ounce during the Asian trading hours on Monday. The non-yielding metal struggles as rising energy prices fuel inflation risks, reducing expectations for rate cuts by the US Federal Reserve (Fed) and other major central banks.
West Texas Intermediate (WTI) oil price has opened the week with a bullish gap, climbing roughly 8.5%, and is trading around $98.00 per barrel at the time of writing. The latest surge in oil prices is mainly driven by the re-escalation of the conflict between the United States (US) and Iran.
US President Donald Trump said Washington would begin blockading all ships entering or leaving the Strait of Hormuz after the announcement of the failure of US-Iran peace talks in Islamabad. Moreover, the US Central Command (CENTCOM) said forces will begin blockading all maritime traffic entering and exiting Iranian ports at 10 AM ET (14:00 GMT) on Monday.
Friday’s hot US Consumer Price Index (CPI) data reinforced the Fed’s higher-for-longer stance. The US Bureau of Labor Statistics (BLS) reported that annual CPI rose to 3.3% in March from 2.4% in February, matching expectations. On a monthly basis, CPI increased 0.9% after 0.3% previously. Meanwhile, core CPI rose 0.2% month-over-month and 2.6% year-over-year.
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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