The gold price (XAU/USD) is attracting some buyers to near $5,330 during Monday’s early Asian session. The precious metal remains positive after reaching $5,420 in the previous session, boosted by safe-haven flows. Traders will receive more guidance from Fedspeak later on Tuesday.
Over the weekend, the United States (US) and Israel attacked Iran’s top leadership and nuclear infrastructure. US President Donald Trump said on Monday that combat operations in Iran will continue until America’s goals are achieved. Fear of a wider and prolonged war in the Middle East has sparked a risk-off mood in financial markets, boosting customary safe-haven assets such as gold.
On the other hand, inflation concerns are returning as oil prices rise, prompting markets to reduce the likelihood of the Federal Reserve (Fed) cutting interest rates. This, in turn, may have a negative impact on non-performing assets. Markets largely expect the U.S. central bank to leave interest rates unchanged through the summer, although U.S. President Donald Trump has pushed for lower rates.
Traders will be closely monitoring Fedspeak later in the day. New York Fed President John Williams, Kansas City Fed President Jeff Schmid and Minneapolis Fed President Neel Kashkari are scheduled to speak. Any hawkish comments from Fed officials could push up the U.S. dollar (USD) and impact the price of USD-denominated goods.
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 operate 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 sheltered 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 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. Still, 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.
