Gold price (XAU/USD) falls to around $4,690 during the early Asian session on Monday. The precious metal attracts some sellers after US President Donald Trump rejected Iran’s latest peace offer to end the 10-week conflict choking the Strait of Hormuz, fanning inflation fears.
Trump and Iran rejected each other’s peace proposals to end the war as the two sides struggle to maintain a fragile ceasefire, per Bloomberg. US President labeled Iran’s response to his proposal to end the conflict as “totally unacceptable.” Meanwhile, Iranian officials insisted the US needs to pay compensation for war damages, adding that Tehran will reject the US plan that would have forced the country to submit to Trump’s excessive demands.
The ongoing conflict between the US and Iran may keep inflation risk elevated, as well as the expectation for higher interest rates, which weigh on non-yielding bullion. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
US Nonfarm Payrolls (NFP) beat expectations, though the plodding US labor market sent up several flags for a potential slowdown this year. The US economy added 115K jobs in April, versus the 185K increase (revised from 178K) in March, according to the Bureau of Labor Statistics on Friday. This figure surpassed the estimations of 62K by a wide margin. Meanwhile, the Unemployment Rate held at 4.3% in April, in line with the market consensus.
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.
