Gold declines to near $4,750 as oil-driven inflation worries weigh ahead of US CPI data

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Gold price (XAU/USD) trades with mild losses near $4,760 during the early Asian session on Friday. The precious metal declines as market uncertainty persists regarding the fragility of the US-Iran ceasefire and reports of continued Middle East conflict, including the closure of the Strait of Hormuz.

Gold price edges lower to around $4,760 in Friday’s early Asian session.
Worries that surging oil prices would create inflationary pressures and prevent central banks from cutting rates undermine the Gold price.
The US March CPI report will take center stage on Friday.

Bloomberg reported on Thursday that Israeli Prime Minister Benjamin Netanyahu is seeking direct talks with Beirut, a day after the worst bombardment of the war killed more than 300 people in Lebanon and placed ‌the US-Iran ceasefire in jeopardy. However, there was no sign Iran was lifting its near-total blockade of the Strait of Hormuz, which has caused the worst-ever disruption to global energy supplies.

Surging oil prices have heightened energy inflation concerns, which are dampening expectations for interest rate cuts, weighing on the yellow metal. Gold is often used amid geopolitical uncertainty, but it does not yield interest, making it less attractive when interest rates are high.

Traders will closely monitor the release of the US Consumer Price Index (CPI) inflation report for March, which is due later on Friday. The headline CPI is expected to see a rise of 3.3% YoY in March, compared to 2.4% in February, driven by soaring oil prices due to the Middle East war. If the report shows a softer-than-expected outcome, this could drag the US Dollar (USD) lower and lift the USD-denominated commodity price in the near term.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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