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Breaking: Gold price rises above $3,400 on rising Middle East tensions

  • Gold price gains traction to around $3,425 in Friday’s Asian session, adding 1.15% on the day. 
  • Israeli PM Netanyahu said operations against Iran will continue for many days.
  • Geopolitical risks and rising Fed rate cut bets support the yellow metal. 

The Gold Price (XAU/USD) rises to over five-month highs near $3,425 during the Asian trading hours on Friday. Rising geopolitical tensions in the Middle East and rising bets on Federal Reserve (Fed) rate cuts provide some support to the precious metal. 

Israeli Defense Minister Israel Katz said late Thursday that there had been a “preemptive strike against Iran” and declared a state of emergency as the country prepared for retaliation. Israel's Prime Minister Benjamin Netanyahu stated early Friday that Israel’s goal is to remove the nuclear threat in Iran as failure to do so could spark a scramble by other countries in the Middle East to obtain nuclear weapons, per CNN. Netanyahu added that the operation will continue for as many days as it takes. 

"Gold is up for the second straight day, largely on heightened geopolitical risks. If gold clears $3,400 again, minor hurdles at $3,417 and $3,431 remain — but a breakout to new all-time highs looks likely ultimately," said Peter Grant, vice president and senior metals strategist at Zanier Metals.

Softer-than-expected US Producer Price Index (PPI) inflation data released on Thursday have lifted the prospect for a rate cut from the US Federal Reserve (Fed). This, in turn, weighs on the Greenback and supports the USD-denominated commodity price.

Traders now expect a 25 basis points (bps) rate cut by September, with another such move likely in October. Before Thursday's PPI data, traders projected the Fed to wait until December to deliver a second rate cut.  

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.

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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