Gold price (XAU/USD) extends the rally to around $4,950 during the early Asian session on Friday. The precious metal gains momentum as geopolitical risk and threats to the US Federal Reserve’s (Fed) independence boost the safe-haven demand.
The yellow metal is set to reach a fresh all-time high and is on track for a weekly gain of more than 7%. Traders flock to traditional safe-haven assets such as Gold after tensions in Venezuela, Iran and Greenland.
Additionally, traders await US President Donald Trump’s pick for the next Fed Chair to succeed Jerome Powell. A more dovish chair would increase bets on further interest-rate cuts this year, which could underpin the Gold price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
On the other hand, hopes for a solution in Trump’s ambitions for Greenland could weigh on the precious metal. Trump said he would step back from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland. He further stated that the US and the North Atlantic Treaty Organization (NATO) had formed the framework of a future deal with respect to Greenland.
“Gold may be pausing, but the bull market is very much intact — with rate‑cut expectations, persistent geopolitical tensions and strong central‑bank buying keeping the risk skewed firmly to the upside,” said Ewa Manthey, commodities strategist at ING Groep NV.
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.
