Gold remains subdued near $5,000 due to fading Fed rate cut bets
- Gold struggles as rising energy prices fuel inflation, lowering expectations of Fed rate cuts.
- US attacked Iran’s main oil export hub, Kharg Island, over the weekend, raising global supply risks.
- Safe-haven demand eases on reports that the US may announce a coalition to escort ships through the Strait of Hormuz.
Gold price (XAU/USD) loses ground for the fourth successive session, hovering around $5,000 per troy ounce during the European hours on Monday. The non-yielding metals, including Gold, continue to struggle as rising energy prices mount inflationary pressures, which have lowered expectations that the US Federal Reserve and other major central banks will cut interest rates.
The United States (US) attacked Iran’s main oil-export hub of Kharg Island over the weekend, heightening global supply risks. US President Donald Trump said oil infrastructure was not struck; however, the strike prompted retaliatory attacks from Tehran on Israel and energy infrastructure across other Arab countries. The US-Israeli war on Iran has now entered its third week with no clear resolution in sight, rattling financial markets.
The precious metals, including Gold, suffered as safe-haven demand eased after reports that the United States (US) may announce a coalition to escort ships through the Strait of Hormuz. President Trump also called on allied nations, including the UK, France, China, and Japan, to assist in securing the Strait of Hormuz. Meanwhile, European Union (EU) foreign ministers are meeting in Brussels to discuss a possible naval response to the effective closure of the Strait.
Moreover, US Energy Secretary Chris Wright said that he expects the US-Israel conflict with Iran to end within “the next few weeks,” potentially allowing oil supplies to recover and energy prices to decline.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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