Gold price (XAU/USD) rises to near $4,775 during the early Asian session on Wednesday. The precious metal attracts some buyers after US President Donald Trump agrees to suspend Iran bombing for two weeks.
Trump revealed via a post on Truth Social that he will suspend the attacks for two weeks. This action came after Pakistan, a mediator between the US and Iran, requested that Trump grant a two-week ceasefire and extension to a deadline he imposed on Iran to end its blockade of Gulf oil.
Oil prices have surged since the Iran conflict intensified, raising supply concerns. Higher energy costs feed into inflation, leaving central banks with little leeway to cut interest rates. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
Traders will keep an eye on the minutes from the Federal Reserve’s (Fed) meeting in March, which will be released on Wednesday.
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.