Gold flatlines below $4,550 as markets await US-Iran ceasefire progress

Gold price holds steady near $4,545 in Friday’s early Asian session.
Traders keep a close watch on whether the US-Iran peace talks will progress.
Trump will swear in Warsh on Friday to lead the Fed.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) trades on a flat note around $4,545 during the early Asian session on Friday. The precious metal steadies as traders await the progress of US-Iran ceasefire talks. US President Donald Trump will swear in Kevin Warsh, his hand-picked choice to lead the US Federal Reserve (Fed), during a ceremony on Friday.

Iranian officials stated that the latest proposal from the US partly bridged the gap between the warring sides, but comments from the Islamic Republic’s Supreme Leader about keeping Tehran’s uranium stockpile and a dispute over tolls in the Strait of Hormuz clouded the outlook for a breakthrough. Trump on Wednesday warned that he may resume attacks soon if Iran doesn’t agree to his terms.

“As a non-yielding asset, gold performs best when real yields decline, and the US dollar depreciates,” said Kiran Kowshik, Global FX Strategist at Lombard Odier. “However, an energy supply shock can have the opposite effect, resulting in markets pricing higher central bank rate expectations, higher yields and a firmer US dollar. It is therefore unsurprising that gold has shown a strong negative relationship with rising energy prices,” Kowshik added.

The new Fed Chair will succeed Jerome Powell, whose term expired Friday but who continues to serve on a pro-tempore basis until Warsh officially takes over. Warsh will lead his first Federal Open Market Committee (FOMC) policy meeting in the June policy meeting.

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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