Gold drifts higher to near $5,000 on heightened US-Iran tensions

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Gold price edges higher to around $5,000 in Friday’s early Asian session.
Heightened geopolitical worries over US-Iran tensions boost the safe-haven flows, supporting the Gold price.
The upbeat US economic data have led the Fed to hold interest rates in the near term.

Gold price (XAU/USD) holds positive ground near $5,000 during the early Asian session on Friday. The precious metal edges higher as escalating tensions between the United States (US) and Iran boost safe-haven demand. Traders brace for the preliminary reading of US Gross Domestic Product (GDP) for the fourth quarter (Q4), the Personal Consumption Expenditures (PCE) and the S&P Global Purchasing Managers Index (PMI) data, which are due later on Friday.

US President Donald Trump said on Thursday that Iran had 10 to 15 days at most to strike a deal over its nuclear program, per Bloomberg. Trump added that "really bad things will happen" if no deal is reached with Iran and the US will get a deal one way or the other. Tracking site FlightRadar24’s data showed a surge of flight activity by US military transport, aerial tankers, surveillance aircraft and drones to bases in Qatar, Jordan, Crete and Spain.

Traders will closely monitor the developments surrounding a potential US-Iran conflict. Rising tensions between both countries could boost a traditional safe-haven asset such as Gold in the near term.

The recent US economic data showed the US economy was on a stable footing, giving the Federal Reserve (Fed) leeway to hold interest rates in check in the near term. A higher-for-longer US interest rate stance generally has a negative impact on a non-yielding Gold as it doesn’t pay interest.

Minneapolis Fed President Neel Kashkari said the labor market has remained "pretty resilient" and that the central bank is close to both mandates of maximum employment and stable prices. Meanwhile, San Francisco Fed President Mary Daly stated that the monetary policy is in a good place.

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.