Gold recovers above $4,100 as traders assess US-Iran conflict
- Gold price edges higher to near $4,120 in Friday’s early Asian session.
- US officials signaled it’s still committed to MOU with Iran after Trump declared it’s ‘over.’
- Hawkish Fed expectations might cap the upside for Gold price.
Gold price (XAU/USD) rebounds to around $4,120 during the early Asian session on Friday. The precious metal edges higher as traders weigh a resumption of war in the Middle East.
The White House signaled that it is still committed to the memorandum of understanding with Iran, even though US President Donald Trump’s declared earlier this week that the framework deal to end the Iran war was “over” after Tehran carried out strikes against vessels in the Strait of Hormuz and against neighboring countries.
However, uncertainty remains high as Trump said that strikes would “get much worse” if Tehran again attacked ships in the strait. On Thursday, the Islamic Republic targeted US bases in Bahrain, Kuwait and Qatar. Jordan intercepted eight Iran-launched missiles, according to Axios.
Escalating tensions between the US and Iran could drive crude oil prices higher, stoking inflation fears and forcing the Federal Reserve (Fed) to maintain its higher-for-longer rate stance.
The release of minutes from the Fed’s June meeting, which was Chairman Kevin Warsh’s first, reflected a divided central bank not sure how to proceed on rates without more information on inflation.
The minutes said that “many participants indicated that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year,” while also saying that “many other participants, however, assessed that the appropriate level of the federal funds rate would be above the current target range.”
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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