Gold drifts higher to near $4,750 ahead of US CPI inflation release

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Gold price (XAU/USD) trades in positive territory around $4,750 during the early Asian session on Tuesday. The precious metal edges higher as traders assess developments in the United States (US)-Iran diplomacy and await key US inflation data, which is due later on Tuesday.

Gold price edges higher to near $4,750 in Tuesday’s early Asian session.
Traders will closely watch the US April CPI inflation data later on Tuesday.
Trump said the US-Iran ceasefire is on ‘massive life support.’

US President Donald Trump over the weekend rejected an Iranian peace proposal, calling it "totally unacceptable." This has fueled uncertainty and kept crude oil prices elevated. Trump said later on Monday that the ceasefire between the two countries was on “life support.”

The US Consumer Price Index (CPI) report for April will be the highlight later in the day. The headline CPI is expected to show a rise of 3.7% YoY in April, compared to 3.3% in March, driven by surging oil prices. The core CPI is projected to show an increase of 2.7% YoY in April, versus 2.6% prior.

Any signs of hotter inflation in the US could lead to expectations that the US Federal Reserve (Fed) may keep interest rates higher for longer. This, in turn, could lift the US Dollar (USD) and weigh on the USD-denominated commodity price.

“There is just some bargain hunting coming in and positioning ahead of the U.S. inflation data this week,” said Jim Wyckoff, market analyst at American Gold Exchange.

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.