Gold Price Forecast: XAU/USD climbs to near $3,450 amid Israel-Iran conflict
- Gold price gains momentum to around $3,445 in Monday’s early Asian session.
- Fears of a broader conflict in the Middle East boost the safe-haven flows, supporting the gold price.
- Traders now see an 80% chance of a Fed rate cut in September.
The Gold price (XAU/USD) attracts some buyers to near $3,445 during the early Asian session on Monday. The precious metal rises to over a one-month high due to escalating Middle East tensions and rising bets of a Federal Reserve (Fed) rate cut.
Investors ignored the upbeat US economic data released on Friday. Data released by the University of Michigan on Friday showed that the Consumer Sentiment Index rose to 60.5 in June versus 52.2 prior. This reading came in above the market consensus of 53.5.
Renewed geopolitical concerns in the Middle East following an Israeli attack on Iran continue to underpin the Gold price, a traditional safe-haven asset. Iranian officials underscored that they would “respond firmly to any adventurism” from Israel.
"Israel knocking out Iranian targets is causing a little bit of geopolitical scare in the market. Prices will stay elevated in anticipation of what is to come, the retaliation by Iran," said Daniel Pavilonis, senior market strategist at RJO Futures.
The Fed is expected to leave its policy rate in the 4.25%-4.50% range at its June meeting on Wednesday. However, traders now expect a quarter-percentage-point rate cut by September. Before last week’s US inflation data, traders had expected the Fed to wait until December to deliver a second rate cut. Rising expectations of a Fed rate cut lift interest-bearing assets like Gold.
Gold FAQs
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.
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.
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.
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.
