Gold declines to near $4,200 as hawkish Fed stance offsets support from US-Iran peace deal

Gold price declines to around $4,210 in Friday’s early Asian session.
Fed's hawkish shift undermines the Gold price, a non-yielding asset.
Optimism that a reopening of the Strait of Hormuz will ease inflation risks might help limit the precious metal’s losses.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) loses ground to near $4,210 during the early Asian session on Friday. The precious metal extends the decline after the US Federal Reserve (Fed) held interest rates steady in the June policy meeting but signaled rate hikes could come this year.

The Fed on Wednesday made its first decision on interest rates under new chair Kevin Warsh, as the Federal Open Market Committee (FOMC) voted unanimously to hold rates between 3.5% and 3.75%.

The federal funds rate has held there since the US central bank lowered rates by three-quarters of a percentage point in the latter part of 2025. Fed officials signaled the chance of higher rates as they assess the impacts of the Iran war on inflation.

“Persistently high prices are a burden for the American people, but the recent past need not be prologue,” said Kevin Warsh in his debut press conference as chairman. Officials are unambiguous and unanimous. This committee will deliver price stability.”

It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.

On the other hand, the US-Iran peace agreement could provide some support to the yellow metal. Bloomberg reported on Thursday that the interim peace deal between both countries took effect, and shipping started returning to the Strait of Hormuz as the US declared an end to its blockade and a complex negotiating period over Tehran’s nuclear program began in earnest.

Earlier Thursday, US President Donald Trump said that “oil is flowing,” hours after signing a memorandum of agreement to extend a ceasefire and begin negotiations to end the conflict he started alongside Israel at the end of February.

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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