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Gold drifts lower as stalled US-Iran talks, hawkish Fed outlook pressure prices

  • Gold price loses ground to around $4,535 in Monday’s early Asian session. 
  • Iran said no nuclear commitments were made as talks with the US continue. 
  • Hawkish signals from the Fed could weigh on the Gold price.

Gold price (XAU/USD) declines to near $4,535, snapping the two-day winning streak during the early Asian session on Monday. The precious metal loses ground amid the lack of progress in the US-Iran peace negotiations. Traders will closely monitor the Middle East developments as the tensions in the region are ongoing. 

Reuters reported on Sunday that Iranian officials said that talks with the US are continuing, but no nuclear commitments have been made. Meanwhile, Iran's parliament speaker and top negotiator, Mohammad Bagher Ghalibaf, stated that Tehran will not accept any deal with Washington unless it ensures “the rights of the Iranian people are secured.”

As the diplomatic exchanges continued, Israel expanded its ground attack in Lebanon, shattering a brittle truce with its northern neighbor.

Federal Reserve (Fed) policymakers continued on Friday to signal the central bank may need to raise interest rates in the future if the war in the Middle East leads to a persistent increase in already-high inflation. 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.

Traders await the US May employment data on Friday for fresh impetus. This report could offer some hints as to whether the US economy is strong enough to push the Fed to lift interest rates by next year.

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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