Gold price (XAU/USD) edges higher to near $5,095 during the early Asian session on Monday. The precious metal extends the rally amid US President Donald Trump’s tariff threats and uncertainty, boosting safe-haven flows.
The US Supreme Court struck down Trump’s tariffs as illegal on Friday. Within hours, the US President invoked Section 122 of the Trade Act of 1974 to first impose a 10% global import tariff before increasing that to 15%. He declared all national security tariffs under Section 232 and existing Section 301 tariffs to be in full force and effect. Trump’s trade war risks and uncertainty could boost a traditional safe-haven asset such as Gold in the near term.
On the other hand, hopes for the United States and Iran negotiations might cap the upside for the yellow metal. Oman’s foreign minister said Sunday that the next round of talks between the US and Iran will be on Thursday in Geneva.
Trump warned on Friday that limited strikes against Iran are possible, even as Iranian officials at the time said Tehran expected to have a potential agreement ready in the coming days.
Looking ahead, the US Producer Price Index (PPI) will take center stage later on Friday. This report might offer some hints about the US Federal Reserve (Fed) interest rate decisions.
Gold FAQs
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.
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.
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.
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.
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