The price of gold (XAU/USD) fell to almost $4,605 during Friday’s early Asian session. Precious metal prices fall as U.S. jobless claims data strengthens the U.S. dollar. The December U.S. industrial production report will be released later Friday. Federal Reserve (Fed) Governor Michelle Bowman is also scheduled to speak.
The number of Americans filing fresh claims for unemployment benefits unexpectedly dropped to 198,000 in the week ending Jan. 10, according to a Thursday release from the U.S. Department of Labor (DOL). This number was lower than the market consensus of 215,000. and lower than the previous week of 207 thousand. (corrected from 208 thousand).
“The recent data kind of keeps expectations from the Fed flat for perhaps the first half of the year, so the dollar index is at its highest level in many weeks, which is having some impact on the gold price at this point,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Moreover, the easing of U.S.-Iran tensions undermines established safe-haven assets such as gold, which generally holds true in times of geopolitical and economic uncertainty.
US President Donald Trump said early evening that Iran had “no execution plan” amid concerns about the fate of a detained anti-government protester. Nevertheless, Trump did not dismiss either option, saying further killings would have “serious consequences.”
Traders will be closely monitoring the latest geopolitical developments surrounding civil unrest in Iran. Any signs of escalating tensions could result in an raise in the price of gold in the near future.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and utilize in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and unthreatening haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets support the precious metal.
The price may vary due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise in lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Despite this, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A robust dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
