Gold slumps below $5,100 as US Dollar gains

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Gold price (XAU/USD) tumbles to near $5,085 during the early Asian session on Friday. The precious metal loses ground amid a stronger US Dollar (USD). The US employment report for February will take center stage later on Friday.

Gold price falls to around $5,085 in Friday’s early Asian session.
Conflicts in the Middle East have pushed up oil and gas prices, stoking fears of renewed inflation.
Iran intensifies attacks across the Gulf, which might help limit the Gold’s losses.

Surging oil and gas prices due to Middle East conflicts have fueled fresh inflation fears, causing traders to scale back bets on further easing by the Fed. This, in turn, lifts the Greenback and weighs on the USD-denominated commodity price.

“The recent volatility does not mean demand for gold as a safe-haven asset has weakened,” said Morgan Stanley analysts. “The slowdown is largely being driven by two forces: a stronger US dollar and investors seeking liquidity.”

However, escalating tensions in the Middle East could boost a traditional safe-haven such as Gold. Iran launched a fresh wave of missile and drone strikes across the Gulf on Thursday, with attacks reported in the United Arab Emirates, Bahrain, Qatar, and Kuwait.

Iranian Foreign Minister Abbas Araghchi said that Tehran hadn’t asked for a ceasefire and had no intention to negotiate, and Iran’s Islamic Revolutionary Guard Corps said retaliatory attacks will intensify in the coming days.

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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