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Gold edges lower below $4,750 amid fragile Middle East ceasefire

  • Gold price posts modest gains near $4,720 in Thursday’s early Asian session. 
  • Two-week ceasefire fails to halt Israel-Hezbollah fighting. 
  • Fed officials still expect a rate cut this year despite war impacts, FOMC Minutes showed.

Gold price (XAU/USD) trades in negative territory around $4,705 during the early Asian session on Thursday. The precious metal edges lower amid a temporary two-week ceasefire between the US and Iran.   

US President Donald Trump said late Tuesday that he had agreed "to suspend the bombing and attack of Iran for a period of two weeks” on the condition that Iran re-opens the Strait of Hormuz. 

“The ceasefire is calming markets and easing pressure. It could help roll back some inflationary pressures and might open the door for Fed rate cuts, which is bullish for gold,” said Edward Meir, a Marex analyst.

The recovery of yellow metal could be short-term as sporadic fighting continued in the Middle East, including in Lebanon. Iranian officials cast that as violating the terms of the less than day-old ceasefire.

Gold faced some selling pressure in recent weeks amid worries that surging oil prices from the Middle East conflict would create inflationary pressures and prevent central banks from cutting interest rates. Gold is often used amid geopolitical uncertainty, but it does not yield interest, making it less attractive when interest rates are high.

According to minutes released Wednesday, Fed officials at their March meeting still expected to lower interest rates this year, even with a high level of uncertainty from the Iran war and tariffs. Policymakers stated that they would need to remain “nimble” as they weighed the impact the war had on inflation, which continued to hold above the Fed’s target, and hiring, which has been mostly flat over the past 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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