Gold price (XAU/USD) holds positive ground near $4,010 after retreating from a fresh record high of $4,059 in the previous session during the early Asian session on Thursday. Broader geopolitical and economic uncertainty firmed traders’ demand for the safe-haven asset.
Growing concerns over the US economy and political stability provide some support to the yellow metal. The Senate on Wednesday again rejected dueling Republican and Democratic funding proposals to end the government shutdown. The shutdown has entered its ninth day with no hint of progress toward a resolution. US President Donald Trump’s administration warned on Tuesday of no guaranteed back pay for federal workers during a government shutdown.
Furthermore, the US Federal Reserve (Fed) lowered its benchmark interest rate at its September policy meeting, the first time since late 2024, and signaled that two more reductions could be in the cards later this year. The Fed is widely expected to cut rates by 25 basis points (bps) at its October meeting, and traders are currently pricing in nearly a 78% possibility of an additional cut in December, according to the CME FedWatch tool.
The prospect of an interest rate cut could underpin the precious metal in the near term. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
On the other hand, easing geopolitical risks in the Middle East might cap the upside for the yellow metal. US President Donald Trump late Wednesday announced that Israel and Hamas have both signed off on the first phase of peace plan, per the BBC. All the hostages were also supposed to be freed within 72 hours of an agreement being reached, though Hamas on Saturday signaled this may be unrealistic.
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.
