Gold edges lower to near $4,100 on renewed US–Iran tensions

Gold price declines to near $4,100 in Wednesday’s early Asian session.
Renewed tensions between the US and Iran weigh on the Gold price.
Traders scale back Fed rate hike bets after weaker US NFP data.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) loses ground to around $4,100 during the early Asian session on Wednesday. The precious metal faces new selling pressure after the US vows a response against Iran following reports of attacks on three oil tankers in and around the Strait of Hormuz. Traders await the release of the Federal Reserve’s (Fed) June meeting minutes later on Wednesday.

“US Central Command forces have begun launching a series of powerful strikes against Iran to impose heavy costs for targeting and attacking commercial shipping crewed by innocent civilians in an international waterway,” Centcom said on Tuesday.

The US military added that the strikes were in response to Iranian attacks on three commercial vessels that were transiting the Strait of Hormuz.

Renewed tensions threaten to further destabilize relations between Washington and Tehran after both countries inked an interim peace deal last month that ended fighting on all fronts and reopened the strait. This, in turn, could raise energy-driven inflation fears and weigh on the non-yielding bullion.

A disappointing June US Nonfarm Payrolls (NFP) report has prompted traders to scale back Federal Reserve (Fed) rate hike bets, which might help limit the non-yielding metal’s losses. Data last week showed the US economy added 57,000 jobs in June, less than the downwardly revised 129,000 added in May and lower than the market expectations of 110,000.

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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