Gold rises above $4,950 as US-Iran tensions boost safe-haven demand
- Gold price rises to around $4,985 in Thursday’s early Asian session.
- US Vice President said Iran ignored key US demands, adding that military strikes are on the table.
- FOMC Minutes showed a surprise shift in tone as several members suggested raising the rates.
Gold price (XAU/USD) holds positive ground near $4,985 during the early Asian session on Thursday. The precious metal recovers amid shifts in geopolitical sentiment, boosting safe-haven demand. Traders will keep an eye on the release of US Initial Jobless Claims, Pending Home Sales data, and the Fedspeak later on Thursday.
US Vice President JD Vance said on Wednesday that Iran had failed to acknowledge key US demands in talks, after which Washington said it had agreed to give Tehran two weeks to close the gaps between the sides, per CNBC. Meanwhile, US President Donald Trump reserves the right to use force if diplomacy does not succeed in stopping Iran’s nuclear program. Signs of rising tensions between the US and Iran could boost a traditional safe-haven asset such as Gold.
Market liquidity remained low due to holidays in major regions. Analysts at BMO Capital Markets noted that throughout the holiday period, investors can reasonably expect a soft patch for yellow metal, opening a window for bargain buying.
Renewed US Dollar (USD) demand might cap the upside for the USD-denominated commodity price. The Federal Open Market Committee (FOMC) Minutes from its January policy meeting showed a shifting tone within the committee. Several policymakers said that the US central bank may need to raise rates if inflation remains stubbornly high. Traders dialed back their expectations for a Fed rate cut this year, though Fed funds futures contracts still suggest a reduction is likely by June.
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.