Gold climbs above $5,200 on geopolitical tensions, trade uncertainty
- Gold rises to near $5,230 in Tuesday’s early Asian session.
- Recent US Supreme Court rulings and fresh tariff announcements weigh on the Gold price.
- Traders will closely monitor the US-Iran talks on Thursday.
Gold price (XAU/USD) jumps to around $5,230 during the early Asian session on Tuesday. The rally of the precious metal is bolstered by heightened geopolitical tensions and global trade uncertainty following US tariff decisions. Traders brace for the US January Producer Price Index (PPI) report on Friday for fresh impetus.
The US Supreme Court’s ruling, which declared US President Donald Trump’s sweeping tariffs illegal, has injected uncertainty into global trade yet again, as the US President imposed a new 15% tariff on Saturday. Trump noted in a Truth Social post that the fresh levies would be “effective immediately" and warned that additional tariffs would follow. Renewed uncertainty in global trade dynamics could boost a safe-haven asset such as Gold.
The US and Iran are expected to meet for a further round of talks in Geneva on Thursday in a sign that Trump’s administration believes Tehran is making serious proposals to dilute its stockpile of highly enriched uranium and show it is not seeking a nuclear weapon. Iranian foreign minister, Abbas Araghchi, said that he thought there was still a good chance of finding a diplomatic solution.
Any signs of rising tensions between the US and Iran might contribute to the upside of the yellow metal. On the other hand, positive developments surrounding the negotiation could undermine the Gold price in the near term.
The attention will shift to the US PPI data on Friday, which might offer more clues about the US interest rate path. The headline and core PPI are expected to show a rise of 0.3% in January. In case of hotter-than-expected outcomes, this could lift the US Dollar (USD) and drag the USD-denominated commodity price lower.
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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