Gold holds steady near $4,200 as US–Iran peace progress offset by Fed hawkish stance
- Gold price flatlines around $4,190 in Tuesday's early Asian session.
- Progress in US–Iran peace talks could weigh on the Gold price.
- Market is penciling in a rate hike this year after the new Fed Chair adopted a hawkish tone.
Gold price (XAU/USD) trades on a flat note near $4,190 during the early Asian session on Tuesday. The precious metal steadies as traders continue to assess the developments surrounding the US-Iran peace deal.
US Vice President JD Vance said on Monday that negotiations between the US and Iran have made “great progress” despite “threatening” and “whining,” per CNBC. Vance added that the talks in Bürgenstock, Switzerland, were continuing and Tehran had agreed to permit International Atomic Energy Agency (IAEA) inspectors back into Iran.
The talks were strained over the weekend when Iran announced it had closed the Strait of Hormuz over Israeli strikes on Lebanon, saying these violated the ceasefire.
“Energy prices will remain a key short-term driver for the precious metal space,” said Saxo Bank analyst Ole Hansen, citing the “ongoing bumpy talks” between the US and Iran that could put pressure on oil prices and elevate gold.
Markets expect the US rate hike this year after new US Federal Reserve (Fed) Chair Kevin Warsh adopted a hawkish tone on inflation during his first policy meeting. This, in turn, might undermine the yellow metal. It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
Traders are now pricing in nearly an 89% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting, according to the CME FedWatch tool.
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.
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