Gold slumps below $4,700 as stalled Iran peace talks weigh

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Gold price (XAU/USD) tumbles to around $4,680 during the early Asian session on Monday. The precious metal attracts some sellers amid the ongoing conflict in the Middle East. Traders brace for the US Federal Reserve (Fed) interest rate decision later on Wednesday, with no change in rate expected.

Gold price falls to near $4,680 in Monday’s early Asian session.
Trump cancelled a planned trip by two officials to Pakistan for talks on the Iran war.
Markets expected the Fed to keep rates unchanged.

Uncertainty in the Middle East remains high as peace talks over the Iran war have stalled. US President Donald Trump told Jared Kushner and Steve Witkoff to skip the trip to Pakistan, which is mediating talks, saying that Iran “offered a lot, but not enough.” Iranian President Masoud Pezeshkian stated that his nation won’t enter “imposed negotiations under threats or blockade.”

Meanwhile, Israeli Prime Minister Benjamin Netanyahu said he has ordered the military to "vigorously attack" what he called Hezbollah targets in Lebanon, per BBC. Rising tensions in the Middle East have boosted crude oil prices, which have fueled inflation fears and raised 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.

The Fed is widely expected to keep interest rates unchanged at its upcoming April policy meeting. Traders will closely watch the Fed’s press conference for more clues on how policymakers are interpreting the impact of higher energy costs and whether this alters their longer-term outlook on interest rates.

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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