Gold price (XAU/USD) rises to near $5,035 during Monday’s early Asian session. The precious metal continues its recovery amid a weaker US dollar (USD) and rising demand from central banks. The delayed release of the U.S. jobs report for January will take center stage later on Wednesday.
US Treasury Secretary Scott Bessent on Thursday refused to rule out the possibility of opening an investigation into Kevin Warsh, President Donald Trump’s nominee to chair the Federal Reserve (Fed), if Warsh ultimately refuses to lower interest rates. Concerns about the Fed’s independence continue to depress the dollar and provide some support for USD-denominated commodity prices.
In January, the People’s Bank of China (PBOC) increased its reserves for gold purchases for the fifteenth month in a row. China’s central bank gold reserves rose to 74.19 million troy ounces by the end of January, up from 74.15 million in the previous month. Growing demand from China, the world’s largest gold consumer, may contribute to an boost in the gold price.
Iranian President Masoud Pezeshkian described Friday’s nuclear talks with the United States (US) as a “step forward”, even as he opposed any attempts at intimidation. Meanwhile, Iranian Foreign Minister Abbas Araghchi stressed that any dialogue requires refraining from threats.
Trump said the next meeting would be held early this week, adding that “if they don’t reach an agreement, the consequences will be very severe.” Traders will be closely monitoring developments surrounding the US-Iran talks. Any positive signs of negotiations may weaken precious metals prices in the near term.
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 apply 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 favor the precious metal.
The price may change 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 at 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 sturdy dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
