Gold inches higher above $4,650 amid Trump–Xi summit hopes
- Gold price drifts higher to near $4,660 in Friday’s early Asian session.
- Trump reported that Xi pledged not to provide military equipment to Iran.
- A war-driven surge in US inflation fuels expectations for higher US interest rates.
Gold price (XAU/USD) recovers some lost ground around $4,660 during the early Asian session on Friday. However, the potential upside for the precious metal might be limited as the prospects of US rate cuts have largely faded. Traders will closely monitor US President Donald Trump's meeting with Chinese President Xi Jinping in Beijing.
Trump and Xi called for a better US-China relationship on Thursday as they began a two-day summit likely to cover issues ranging from tariffs to artificial intelligence. Xi reportedly told the US business leaders their companies could be “deeply involved in China's reform and opening up” and that “China's door will only open wider.”
Trump said after Thursday’s meetings that Xi offered help to resolve the conflict and pledged not to provide military equipment to Iran. Xi also wants to see the critical Strait of Hormuz reopened.
“The market is trying to decipher the likelihood of a potential end to hostilities in the Middle East and the Strait of Hormuz reopening fully,” said Nicholas Frappell, global head of institutional markets at ABC Refinery. “Gold will get a boost from a softer dollar and less aggressive policy tightening from central banks if the Strait reopens,” Frappell added.
US data released this week showed the US Producer Price Index (PPI) inflation accelerated to the fastest pace since 2022 in April, while the Consumer Price Index (CPI) rose the most since 2023. These reports have reinforced market expectations that the Federal Reserve (Fed) will maintain elevated interest rates to combat persistent inflationary pressures. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
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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