Gold Price Forecast: XAU/USD drifts lower below $3,350 amid de-escalation in the Middle East
- Gold price loses traction to around $3,325 in Wednesday’s early Asian session.
- The Iran-Israel ceasefire weighs on safe-haven assets like Gold.
- Fed’s Powell said US central bank should not hurry to adjust policy.
The Gold price (XAU/USD) edges lower to near $3,325 during the early Asian session on Wednesday. The precious metal loses ground due to the de-escalation of tensions in the Middle East. Traders brace for the Federal Reserve’s (Fed) Chair Jerome Powell testifies later on Wednesday.
The yellow metal retreats from recent highs after news of the ceasefire between Israel and Iran. A truce between both countries came into effect following four waves of Iranian attacks on Israeli-occupied territories.
"The de-escalation of tensions in the Middle East is the primary factor that's weighing on gold. The safe-haven bid has diminished, and the market is in more of a risk-on mode," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Kansas City Fed President Jeff Schmid said on Wednesday the US central bank has time to study tariff effects on inflation before any rate decision. Schmid’s comments suggest he’s in no rush to lower borrowing costs, echoing what Fed Chair Jerome Powell said earlier Tuesday
Fed Chair Powell reiterated his stance that policymakers should not hurry to adjust policy, saying that the US central bank will continue to wait and see how the economy evolves before deciding whether to reduce its key interest rate. Less dovish remarks from the Fed Chair might help limit the Gold’s losses in the near term.
Money markets have fully priced in two Fed reductions by the end of 2025, with a first move in September far more likely than next month, though expectation of a July reduction rises from last week.
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.