Gold price (XAU/USD) trades in negative territory near $4,730 during the early Asian session on Thursday. The precious metal declines as traders remain cautious over US-Iran peace talks to end the nearly two-month war that has intensified global inflation concerns.
US President Donald Trump said the ceasefire agreed on April 7 would stay in place indefinitely while Washington waits for Iran to submit a new peace proposal, though Tehran says it has no plans to take part in negotiations imminently. US Vice President JD Vance had been prepared to fly to Islamabad on Tuesday to continue talks, before it became clear Iran would not send its own delegation.
Despite a ceasefire extension, tensions remain critical due to a naval blockade in the Strait of Hormuz and stalled peace talks. Ongoing disruptions in the key waterwall have boosted energy costs, which stoke inflation fears and raise the bar for cutting rates. Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.
Traders will closely monitor the developments surrounding US-Iran negotiations. Optimism over peace talks or any signs of easing worries of further escalation in the Middle East conflict could drag the US Dollar (USD) lower and underpin the USD-denominated commodity price in the near term.
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.
