Gold edges higher to near $4,700 as Trump-Xi summit looms
- Gold price drifts higher to around $4,700 in Thursday’s early Asian session.
- Trump arrived in Beijing, where he will meet with Xi Jinping to discuss topics including trade and the Iran war.
- US wholesale inflation accelerated at its fastest annual pace in four years.
Gold price (XAU/USD) trades in positive territory near $4,700 during the early Asian session on Thursday. The precious metal edges higher as markets turn cautious ahead of the US President Donald Trump-Chinese President Xi Jinping summit in Beijing. The US April Retail Sales report will also be in the spotlight later on Thursday.
Bloomberg reported late Wednesday that Trump arrived in Beijing for the first state visit to China by a US leader in nine years, as the world’s two largest economies look to stabilize ties with a summit playing out against the backdrop of the Iran war.
The United States (US) and China are considering a framework that would allow each nation to identify some $30 billion in goods on which tariffs could be reduced without threatening national security interests.
Data released by the US Bureau of Labor Statistics on Wednesday showed that the US Producer Price Index (PPI) jumped by 6.0% YoY in April, following the 4.3% seen in March. This figure came in hotter than the expectation of 4.9%. On a monthly basis, the PPI inflation rose to 1.4% in April from 0.7% in March, and was much higher than the anticipated 0.5%.
Wholesale inflation hit its highest since December 2022, driven by surging oil prices linked to tensions in the Middle East. This report has reinforced market expectations that the US Federal Reserve (Fed) will maintain elevated interest rates to combat persistent inflationary pressures, which could weigh on the yellow metal. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
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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