Gold holds steady near $5,200 ahead of US CPI inflation release

Gold flat lines around $5,190 in Wednesday’s early Asian session.
Trump signaled that the ongoing Middle East conflict could end soon.
The US CPI inflation data for February will be the highlight on Wednesday.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) holds steady near $5,190 during the early Asian session on Wednesday. The precious metal steadies after a period of volatility following signals of potential de-escalation in Middle East tensions.

US President Donald Trump said on Monday that US military operations in Iran would be ending soon but gave no clear timeline for halting attacks that have rattled the Middle East and global markets. His latest comments on the Middle East war dragged oil prices lower and eased inflationary concerns, which provided some support to the yellow metal.

Traders will closely watch the geopolitical developments in the Middle East. Iran’s Islamic Revolutionary Guard Corps (IRGC) warned that if US and Israeli attacks continue, Iran could block regional oil exports. Meanwhile, US President Donald Trump stated that if Iran does anything that stops the flow of oil through the Strait of Hormuz, it will be hit by the US. Any signs of escalating tensions or a prolonged war in Iran could boost a traditional safe-haven asset such as Gold price.

The release of the US February Consumer Price Index (CPI) inflation data will take center stage later on Wednesday. The headline CPI is estimated to show an increase of 2.4% YoY in February, while the core CPI is expected to show a rise of 2.5% during the same period. In case of a hotter-than-expected outcome, this 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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