Breaking: Gold falls below $5,000 as oil-driven inflation fears weigh

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Gold price (XAU/USD) tumbles to around $4,980 during the early Asian session on Monday. The precious metal faces some selling pressure despite intense geopolitical conflict in the Middle East. Traders will closely monitor the developments surrounding the United States (US)-Israel war with Iran.

Gold price slumps to near $4,980 in Monday’s early Asian session.
US officials said Iran war is expected to end within next few weeks.
Rising oil prices could lead to prolonged inflation and potentially higher interest rates, weighing on the Gold price.

The US President Donald Trump administration said that they expect the conflict in Iran to come to an end within weeks or “sooner.” Meanwhile, Israel’s military noted that it plans for its campaign to continue for at least three more weeks.

Over the weekend, US forces targeted every military site on Kharg Island, a critical Iranian oil export hub. Iran has threatened to retaliate against any US-linked oil facilities in the region.

Although war is generally expected to boost the Gold price, the current growing tensions have led to an increase in oil costs. This, in turn, has fueled concerns about inflation and led markets to believe that the US Federal Reserve (Fed) will delay cutting interest rates, which is negative for non-yielding gold.

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.