Gold flatlines near $4,450 on US-Iran uncertainties, US PCE inflation data looms

Gold price holds steady near $4,455 in Thursday’s early Asian session.
Trump said he won’t be rushed into a deal because he doesn’t “care about the midterms.”
Traders will closely monitor the US April PCE Price Index inflation data later on Thursday.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) trades on a flat note around $4,455 during the early Asian session on Thursday. The precious metal steadies as US-Iran peace negotiations face uncertainties. Traders prefer to wait on the sidelines ahead of the US Core Personal Consumption Expenditures (PCE) Price Index report, which is due later on Thursday.

US President Donald Trump said on Wednesday that he won’t be rushed into a deal, warning that Iran’s efforts to outlast him won’t work because he doesn’t “care about the midterms.” Trump further stated that the Strait of Hormuz will be “open to everybody” and that the US will “watch over it,” adding that those terms are a part of negotiations with Iran.

On Wednesday, US Secretary of State Marco Rubio said the US will give talks with Iran “every chance to succeed.” Rubio added that talks with Iran have made some progress. Trump prefers diplomacy but has other options available if that doesn’t work. Uncertainty over the US-Iran peace deal and the vital Strait of Hormuz could weigh on the Gold price in the near term.

All eyes will be on the release of the US PCE inflation data later in the day. This report might offer some clues about the US interest rate path this year. The headline PCE Price Index is expected to show a rise of 3.8% YoY in April, compared to 3.5% in March. Meanwhile, the core PCE Price Index is projected to show an increase of 3.3% YoY in April, versus 3.2% prior.

Any signs of hotter inflation in the US could reinforce the expectation of the interest rate hike from the US Federal Reserve (Fed) this year. 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.

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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