Gold holds gains above $4,300 on hopes of US–Iran peace deal, eyes on Fed rate decision
- Gold price gains momentum to near $4,335 in Wednesday’s early Asian session.
- The US and Iran are preparing to formally sign an interim peace deal.
- Fed interest rate decision will take center stage later on Wednesday.
Gold price (XAU/USD) holds positive ground around $4,335 during the early Asian session on Wednesday. The precious metal rebounds from its lowest levels of the year, which reached last week after the United States (US) and Iran had agreed on a framework deal to end the war. All eyes will be on the US Federal Reserve (Fed) interest rate decision later on Wednesday.
Washington and Tehran are preparing to formally sign an interim peace deal that’s left both sides claiming victory, per Bloomberg. A US official said the full accord may be published in the next two days ahead of a signing ceremony in Switzerland.
US President Donald Trump stated on Tuesday that the Strait of Hormuz could reopen on Friday. He added that the agreement is a “done deal” that will prevent Iran from developing nuclear weapons, and the US would not pay war reparations or invest money in Iran.
This development would ease an energy and inflation shock that has roiled global markets and shift expectations surrounding Fed interest rate hikes. Markets cut the chance of a US rate hike in December to 58% from nearly 70% last week, according to the CME FedWatch tool.
The US central bank is expected to keep its benchmark interest rate unchanged at its June policy meeting. This would leave the federal funds target rate steady at 3.50% to 3.75%. Traders will closely monitor the press conference, as Kevin Warsh could provide some hints as to whether he seeks to raise interest rates to tame inflation or cut them as Trump has long demanded.
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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