Gold slumps to near $5,050 on oil-driven inflation fears, stronger US Dollar
- Gold price tumbles to near $5,065 in Monday’s early Asian session.
- Surging oil priceshave fueled fresh inflation fears, causing traders to scale back bets on further easing by the Fed.
- A disappointing US February jobs report might help limit the Gold’s losses.
Gold price (XAU/USD) falls to around $5,065 during the early Asian session on Monday, pressured by a stronger US Dollar (USD) and inflationary risks. Traders will closely monitor the developments surrounding the US-Iran conflicts and geopolitical risks in the Middle East. The US Consumer Price Index inflation report (CPI) will be in the spotlight later on Wednesday.
The precious metal faces some selling pressure as a rally in crude oil prices stokes inflation fears in the US, raising the chance that the US Federal Reserve (Fed) will hold interest rates higher for longer. Higher borrowing costs are typically negative for the non-yielding Gold price.
The US central bank is expected to hold rates steady at its upcoming meeting on March 17-18. Many economists anticipate the next rate cut will not occur until June or July 2026.
Fed Governor Christopher Waller said that he thought the rise in oil prices was "more like a one-off event" that would not require a Fed response but also acknowledged the uncertainties if the conflict persists and oil prices keep rising.
On the other hand, the weaker-than-expected US Nonfarm Payrolls (NFP) could weigh on the Greenback and lift the USD-denominated commodity price in the near term. The February jobs report showed a decline of 92,000 payrolls, while the Unemployment Rate rose to 4.4% in February from 4.3% in January.
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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