Gold tumbles below $4,000 on Trump’s Iran port blockade move, US CPI data looms

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Gold price slumps to around $3,995 in Tuesday’s early Asian session.
Trump reinstated the Iran port blockade and vowed a 20% charge on cargo passing through Hormuz.
The US June CPI inflation report will take center stage later on Tuesday.

Gold price (XAU/USD) remains under selling pressure near $3,995 during the early Asian session on Tuesday. The precious metal extends its downside as renewed US-Iran tensions keep inflationary pressures high. Traders await the release of the US June Consumer Price Index (CPI) inflation report and Federal Reserve (Fed) Chair Kevin Warsh testifies later on Tuesday.

Bloomberg reported on Monday that US President Donald Trump reinstated the US blockade of Iranian ships transiting the Strait of Hormuz and demanded a 20% reimbursement on all other cargo shipped through the waterway. Trump added that the US would keep up attacks on Iran, saying that “we’re going to hit them very hard tonight, and we’re going to hit them hard tomorrow.”

A reinstatement of the blockade on Iranian ports may prompt Tehran to step up attacks on ships seeking to transit the Strait of Hormuz. This, in turn, could trigger energy-driven inflation concerns and force the Fed to maintain its higher-for-longer rate stance. It’s worth noting that Gold is often used amid geopolitical uncertainty but does not yield interest, making it less attractive when interest rates are high.

The US CPI inflation data will be in the spotlight later in the day. Analysts expect the headline CPI to decline by 0.1% MoM in June, while the core CPI is projected to show a rise of 0.3% during the same period. In case of a softer-than-expected outcome, this 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.