Gold edges higher to near $5,150 on safe-haven demand
- Gold price posts modest gains around $5,140 in Tuesday's early Asian session.
- Middle East tensions support the Gold price, while a stronger USD and concerns over higher interest rates might cap its upside.
- Traders brace for the US February CPI inflation data on Wednesday for fresh impetus.
Gold price (XAU/USD) trades with mild gains near $5,140 during the early Asian session on Tuesday. Persistent geopolitical risks in the Middle East provide some support to the precious metal despite recent selling pressure.
US President Donald Trump signaled that the Iran war will end soon as the Middle East war has entered its 11th day. However, the Strait of Hormuz remains effectively closed, which has led to major producers in the Persian Gulf, including Saudi Arabia, curtailing output. Uncertainty and fears of a prolonged conflict continue to boost a safe-haven asset such as the yellow metal in the near term.
On the other hand, the war in the Middle East stoked fears of inflation rising in the US, which increases the likelihood of the US Federal Reserve (Fed) keeping interest rates higher for longer.
Higher borrowing costs are typically negative for the non-yielding Gold price. The Fed is expected to hold rates steady at its upcoming meeting on March 17-18. Many economists anticipate the next rate cut will not occur until June or July 2026.
Traders will closely monitor the US Consumer Price Index (CPI) inflation data for February, which is due later on Wednesday. The headline CPI is expected to show an increase of 2.4% YoY in February, while the core CPI is projected to show a rise of 2.5% during the same period. Any signs of hotter inflation in the US could lift the US Dollar (USD) and weigh on the USD-denominated commodity price.
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.