Gold falls to near $4,800 as oil-fueled inflation dims rate-cut hopes
- Gold price slumps to near $4,800 in Thursday’s early Asian session.
- Higher oil prices fuel inflation, creating pressure on central banks to maintain tight monetary policy.
- China extends its gold-buying streak to the 18th month.
Gold price (XAU/USD) tumbles to around $4,800, snapping the two-day winning streak during the early Asian session on Thursday. The ongoing tensions in the Middle East created a safe-haven rush, but that momentum faded as oil prices surged. Traders will closely monitor geopolitical developments and economic indicators for fresh impetus.
Bloomberg reported on Wednesday that the US and Iran are considering a two-week ceasefire extension to allow more time to negotiate a peace deal. Nonetheless, tensions remain particularly high over the Strait of Hormuz, a critical waterway for oil and gas that’s been effectively shuttered since the start of the war almost seven weeks ago.
Rising oil prices have heightened energy inflation concerns, which are dampening expectations for interest rate cuts, weighing on the yellow metal. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
On the other hand, higher demand from major central banks could provide some support to the precious metal. The People’s Bank of China (PBoC) has extended its gold purchasing streak to 18 consecutive months through March 2026. This trend marks a structural shift as institutions prioritize de-dollarization and diversification amid rising global instability.
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.