Gold slumps below $4,800 on renewed Strait of Hormuz tensions
- Gold price tumbles to near $4,775 in Monday’s early Asian session.
- The Strait of Hormuz was closed again, with Iranian authorities warning vessels not to approach it.
- Traders brace for the US March Retail Sales data later on Tuesday.
Gold price (XAU/USD) slumps to around $4,775 during the early Asian session on Monday. Traders digest renewed tensions between the United States (US) and Iran over the critical Strait of Hormuz.
Bloomberg reported on Sunday that Iran denied it would participate in new peace talks with the US, hours after US President Donald Trump said its negotiators would head to Pakistan on Monday for a second round of peace talks with Iran.
The Iranian military declared the Strait of Hormuz closed to all commercial vessels, adding that it will target any ship approaching the strait until the US lifts its naval blockade of Iranian ports.
Expectations for US interest rate cuts this year have shifted significantly toward a "higher-for-longer" stance due to persistent inflation and geopolitical instability in the Middle East. Gold is often used amid geopolitical uncertainty, but it does not yield interest, making it less attractive when interest rates are high.
Traders will take more cues from the US Retail Sales report later on Tuesday. Retail Sales is projected to show a rise of 1.3% MoM in March, compared to 0.6% in February. However, if the report shows softer-than-expected inflation in the US, this could weigh on the US Dollar (USD) and support the USD-denominated commodity price.
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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