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Gold rebounds to near $4,050 on softer Fed stance, US NFP data in focus

  • Gold price edges higher to near $4,045 in Thursday’s early Asian session.
  • Fed Chair Warsh declined to hint at the July rate decision.
  • Qatar said indirect US-Iran talks have made ‘positive progress.’

Gold price (XAU/USD) gains momentum to around $4,045 during the early Asian session on Thursday. The precious metal recovers from near seven-month low as traders assess fresh remarks from Federal Reserve (Fed) Chairman Kevin Warsh. All eyes will be on the US employment data for June, which is due later on Thursday.

During the European Central Bank’s annual forum in Portugal on Wednesday, Warsh said that inflation expectations had moderated over the past month. He also reiterated the Fed’s commitment to restoring price stability, reinforcing expectations policymakers are in no rush to raise interest rates.

A less hawkish tone from Fed officials provides some support to the non-yielding bullion by lowering the opportunity cost of holding it, weakening the US Dollar (USD), and driving down bond yields.

“At a minimum, his comments provided no fuel for speculation on a near-term July rate hike, and in our view suggest the new Fed chair – while keeping all options open meeting by meeting – does not currently see cause for an immediate hike,” said Krishna Guha at Evercore.

Furthermore, positive developments surrounding US-Iran talks contribute to the Gold’s upside. Qatar said on Wednesday that US and Iranian negotiators made “positive progress” on issues tied to the memorandum of understanding, with both sides agreeing to continue discussions. Meanwhile, US Vice President JD Vance stated that talks in Doha are “going well” and that discussions about the nuclear issue would start soon.

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

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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