Gold gains above $5,150 as US tariff uncertainty drives demand, eyes on US-Iran talks

Gold posts modest gains around $5,165 in Thursday’s early Asian session.
Traders will closely monitor the US-Iran nuclear talks on Thursday in Geneva.
The US trade representative said US tariffs could rise to 15% or more after the Supreme Court ruling.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) trades with mild gains near $5,165 during the early Asian session on Thursday. The rally of the precious metal is bolstered by escalating geopolitical tensions between the United States (US) and Iran and ongoing uncertainty regarding US tariff policies. All eyes will be on the US Producer Price Index (PPI) report for January, which is due on Friday.

US President Donald Trump last week threatened to attack Iran if negotiations fail. Meanwhile, tens of thousands of US service members are at risk after Iran said that all US military bases in the Mideast would be considered legitimate targets. Fears that an attack could spiral into a new regional war could boost a traditional safe-haven asset such as Gold.

Traders will closely monitor the developments surrounding the US-Iran talks. Two countries are expected to meet for a further round of talks in Geneva on Thursday.

The US trade representative, Jamieson Greer, said on Wednesday that the US tariff rate for some countries will go up to 15% or higher from the newly imposed 10% without naming any specific trading partners or other details.

Trump suffered a defeat at the hands of the US Supreme Court last week, which struck down his sweeping “liberation day” tariffs imposed last year. But in response, Donald Trump announced imposing a 10% global tariff and raising the level to 15%. US tariff uncertainty might contribute to the yellow metal’s upside.

The attention will shift to the US January PPI data on Friday, as it could offer more clues about the US interest rate path. The headline PPI is expected to show an increase of 2.6% YoY in January, while the core PPI is projected to show a rise of 3.0% during the same period. Any signs of hotter inflation in the US could lift the US Dollar (USD) and weigh on the USD-denominated commodity price in the near term.

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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