Gold edges higher above $4,550 on fragile US–Iran ceasefire
- Gold price gains momentum to around $4,575 in Wednesday’s early Asian session.
- US said a ceasefire is in place after conflicts over the Strait of Hormuz.
- The US April employment report will take center stage on Friday.
Gold price (XAU/USD) trades in positive territory near $4,575 during the early Asian session on Wednesday. The precious metal edges higher as markets weigh developments in the Iran war. Traders will keep an eye on the US ADP Employment Change report, which is due later on Wednesday.
US Defense Secretary Pete Hegseth said on Tuesday that the ceasefire with Iran was not over, even as the US and Iran exchanged fire in the Gulf as they wrestled for control of the Strait of Hormuz. The US Dollar (USD) softens following this headline, which provides some support to the USD-denominated commodity price.
However, uncertainty in the Middle East remains high after a day of clashes involving ships in the Strait of Hormuz and missile strikes against the United Arab Emirates (UAE). The UAE stated on Tuesday that it’s responding to missile and drone threats, having intercepted almost all of roughly 20 projectiles fired from Iran the previous day. The ongoing US-Iran conflict in the Strait of Hormuz might cap the upside for Gold.
Traders will closely monitor the US employment data for April later on Friday. This report could influence interest rate expectations and gold's next major move. Market consensus expects the US economy to have added 60,000 jobs in April, while the Unemployment Rate is projected to hold steady at 4.3% during the same period.
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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