Gold gains as falling oil prices ease inflation and rate hike fears
- Gold rises as falling oil prices and a pause in US-Iran strikes eased inflation and interest rate concerns.
- Upcoming policy decisions from the Fed, BoE, and BoJ could trigger further market movement.
- Iran confirmed it will refrain from retaliatory attacks as long as the US bombing pause holds.
Gold price (XAU/USD) gains ground for the second consecutive day, trading around 4,103 per troy ounce during the Asian hours on Monday. Gold prices pushed higher as a sharp drop in oil prices eased market fears over inflation and interest rate hikes, following a weekend pause in military hostilities between the US and Iran.
Attention now shifts to a dense week of economic catalysts that could spark fresh market volatility. Investors face an unusually heavy lineup of central-bank decisions, including meetings by the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ), alongside pivotal inflation and growth figures. Key releases such as US GDP, US core PCE inflation, and CPI reports from the Eurozone and Australia are expected to heavily influence global interest rate expectations.
The diplomatic landscape saw a reprieve after the US suspended its two-week bombing campaign against Iran late Friday. Tehran responded by holding back retaliatory strikes against Washington's Middle Eastern allies for a second consecutive night. US Ambassador to the United Nations Mike Waltz noted that while American forces remain locked and loaded, President Donald Trump wants to give room for potential negotiations.
Reuters corroborated this stance, quoting a senior Iranian official who stated that Tehran's policy remains "attack for attack"—meaning if US strikes halt, Iran will likewise suspend its military operations.
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.