Gold declines to near $4,450 amid fading Iran peace hopes

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Gold price (XAU/USD) tumbles to around $4,465 during the early Asian session on Wednesday. The precious metal extends the decline amid uncertainty surrounding the peace deal between the United States (US) and Iran.

Gold price falls to near $4,465 in Wednesday’s early Asian session.
Ongoing tensions in the Middle East weigh on the Gold price.
The US employment data for May will be closely watched later on Friday.

Iran reportedly threatened to completely withdraw from peace talks on Monday over Israel's attacks in Lebanon. US President Donald Trump secured a renewed ceasefire between Israel and Hezbollah, going on to insist that talks with Iran remain active.

Meanwhile, US Secretary of State Marco Rubio said on Tuesday that the US will not remove sanctions on Iran in exchange for a full reopening of the Strait of Hormuz, adding that any sanctions relief is conditioned on Iran giving up enriched uranium.

“The optimism surrounding negotiations between the US and Iran aimed at ending the standoff in the Strait of Hormuz faded over the weekend,” said Ricardo Evangelista, ActivTrades analyst. “As a result, energy prices rebounded, reviving inflation concerns and reinforcing hawkish Federal Reserve expectations,” he added.

Traders brace for the US employment data for May, which is due later on Friday. The report could help sway the US Federal Reserve’s (Fed) policy path in the near term. The data are expected to show a gain of 85,000 jobs in May and no change in the current 4.3% Unemployment Rate. Any signs of weakening in the US labour market could weigh on the US Dollar (USD) and support 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.