Gold holds steady near $4,550 as market eyes Middle East developments
- Gold price flat lines near $4,540 in Thursday’s early Asian session.
- Trump said the US was in the “final stages” with Iran but also reiterated a pledge to restart attacks if a deal isn’t reached.
- Fed Minutes showed more policymakers warned of a rate-hike scenario.
Gold price (XAU/USD) trades on a flat note around $4,540 during the early Asian session on Thursday. Traders continue to assess the developments surrounding stalled US-Iran peace negotiations and threats to the Strait of Hormuz. The preliminary reading of the US Purchasing Managers Index (PMI) for May will be published later on Thursday.
US President Donald Trump said on Wednesday that the US was in the “final stages” with Iran, sparking investor hopes that a deal was close. However, Trump also reiterated a pledge to restart attacks in the coming days if Iran doesn’t agree to his terms.
"Any type of resolution to the war or opening of the Strait of Hormuz would be a positive for the gold market in so much as the expectation would be that interest rates would decline, and hence that would be opportunistic or helpful to the gold market," said David Meger, director of metals trading at High Ridge Futures.
Minutes of the April Federal Open Market Committee (FOMC) meeting released on Wednesday showed that a majority of Federal Reserve (Fed) officials warned the central bank would likely need to consider raising interest rates if inflation continued to run persistently above their 2% target.
The minutes highlighted the deepening concern among Fed officials about inflationary pressures driven by the Iran war. At the April meeting, the FOMC decided to hold its benchmark federal funds rate steady in a range of 3.5% to 3.75%.
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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