Gold declines as trading volumes remain subdued due to holidays in China
- Gold trades nearly 0.7% lower as trading volumes stayed thin due to market holidays in China and other parts of Asia.
- Gold losses may be limited as softer US CPI boosts expectations of two Fed rate cuts this year.
- Safe-haven demand for yellow metal may rise after Iran drills in the Strait of Hormuz amid renewed US tensions.
Gold price (XAU/USD) extends its losses for the second successive session, trading around $4,930 per troy ounce during the Asian hours on Tuesday. Gold price is trading nearly 0.7% lower at the time of writing as trading volumes stayed thin due to market holidays across China, Hong Kong, and other parts of Asia.
However, losses in the non-yielding metal may be limited after as softer United States (US) Consumer Price Index (CPI) data for January strengthened expectations that the Federal Reserve (Fed) could implement two 25-basis-point rate cuts later this year.
According to the CME Group’s FedWatch tool, markets now price in roughly a 52% probability of a 25-basis-point rate reduction in June and 44% in July. Traders now turn to the Fed Meeting Minutes, Q4 GDP data, and the Fed’s preferred core PCE price index later this week for clearer guidance on the monetary policy outlook.
January’s US Nonfarm Payrolls (NFP) posted the strongest growth in more than a year, and the Unemployment Rate unexpectedly edged lower, signaling a stabilizing labor market. Still, caution prevails as the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, continues to run closer to 3% than its 2% objective, with disinflation progress uneven since mid-2025.
Safe-haven demand for Gold may strengthen amid rising tensions between the United States and Iran ahead of a second round of talks. Tehran on Monday conducted maritime drills in the Strait of Hormuz after Washington deployed a second aircraft carrier to the region, as both sides prepare to resume nuclear negotiations on Tuesday.
Meanwhile, US-led discussions between Russia and Ukraine are also scheduled to start Tuesday, though markets remain doubtful about any meaningful diplomatic breakthrough in the near term.
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.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
