Gold advances above $4,600 amid safe-haven flows

Gold price gains momentum to around $4,630 in Friday’s early Asian session.
Trump said he was sticking with a naval blockade of Iranian ports.
A higher-for-longer US rate stance amid inflationary pressure could undermine the Gold price.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) edges higher to near $4,630 during the early Asian session on Friday. The precious metal extends the rally as renewed tensions in the Middle East have prompted traders to return to a safe-haven asset.

US President Donald Trump said he was sticking with a naval blockade of Iranian ports amid concerns the vital Strait of Hormuz would not reopen anytime soon, per Bloomberg. “Their economy is crashing, the blockade is incredible,” said Trump. “Their economy is a disaster. So we’ll see how long they hold out.”

Earlier on Thursday, Iranian President Masoud Pezeshkian stated that he considered the US naval blockade an “extension of military operations" and that it was “intolerable.”

However, ongoing US–Iran tensions and the closure of the Strait of Hormuz could have fueled inflation fears and raised the bar for cutting rates. This, in turn, could weigh 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.

The US Federal Reserve (Fed) on Wednesday held its key policy rate steady, as widely expected. Fed Chair Jerome Powell said the economic outlook remained highly uncertain and that the Middle East conflict had contributed to that uncertainty.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Lallalit Srijandorn

FXStreet

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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