Gold holds gains near $5,150 amid geopolitical tensions

Gold rises to around $5,145 in Thursday’s early Asian session.
The US said it will strike ‘deeper’ into Iran as war spreads across the region.
The US ISM Services PMI climbs to 56.1 in February, stronger than expected.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) holds positive ground near $5,145 during the early Asian session on Thursday. The precious metal edges higher on safe-haven demand from the US–Iran conflict. The US weekly Initial Jobless Claims report is due later on Thursday. Also, Federal Reserve (Fed) official Michelle Bowman is set to speak.

Israel's military said on Wednesday that it has begun a new wave of strikes targeting military infrastructure in Tehran, per the BBC. Republicans rejected a resolution Wednesday aimed at requiring that US President Donald Trump seek congressional approval for future US military action against Iran.

Earlier, the chairman of the Joint Chiefs of Staff said the US will start “striking progressively deeper” into Iran. Persistent geopolitical risks continue to boost a safe-haven asset such as Gold in the near term.

On the other hand, the ISM Services Purchasing Managers’ Index (PMI) rose to 56.1 in February from 53.8 in the previous month. This figure came in stronger than the market expectations of 53.5. This report could reinforce the US central bank to keep the interest rate higher for longer, which supports the US Dollar (USD) and weighs on the USD-denominated commodity price.

Markets largely expect the US central bank to leave the interest rate unchanged until the summer, though US President Donald Trump has pushed for lower rates.

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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