Gold price (XAU/USD) recovers to near $4,660 during the early Asian session on Tuesday. The precious metal drifts higher as traders watch US President Donald Trump’s Tuesday deadline for military strikes on Iranian infrastructure following the closure of the Strait of Hormuz.
Trump said on Monday that the latest proposal for a U.S. ceasefire with Iran is “not good enough,” ahead of his fast-approaching deadline for Iran to either reopen the Strait of Hormuz or face major attacks on its civilian infrastructure.
The US President reiterated his threats to attack Iran’s energy and transportation infrastructure on Tuesday at 8 p.m. ET if the strait is not reopened. However, rising crude oil prices due to supply concerns linked to the Strait of Hormuz could increase inflation concerns. This could shift Federal Reserve (Fed) rate cuts expectations and weigh on the non-yielding assets. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
Futures pointed to virtually no chance of a move at the April 28-29 Federal Open Market Committee (FOMC) meeting and a 77.5% probability the Fed will stay on hold through the end of the year, according to the CME FedWatch tool.
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.
Source: https://www.fxstreet.com/news/gold-rebounds-as-traders-watch-trumps-iran-deadline-202604062310
