Gold Price Forecast: XAU/USD edges higher above $3,350 as Middle East conflict escalates
- Gold price drifts higher to around $3,375 in Monday’s early Asian session.
- The escalating tensions after the US bombed Iran's nuclear sites have boosted the Gold price.
- Fed's Waller said the central bank is in position as early as July for cuts.
The Gold price (XAU/USD) climbs to near $3,375 during the early Asian session on Monday. US President Donald Trump’s decision to join Israel’s war against Iran sharply escalates the conflict, which lifts the precious metal. Traders will keep an eye on the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) for June later on Monday.
The US carried out airstrikes on three nuclear sites in Iran early Sunday, directly entering Israel’s war with Iran despite Trump’s longtime promises to avoid new foreign conflicts. The escalating tensions after the US bombed Iran's nuclear sites boost the safe-haven flows and benefit the Gold price, as it is traditionally considered a hedge during times of political and economic uncertainty.
Federal Reserve (Fed) Governor Christopher Waller said on Friday that the Fed is in a position to cut the policy rate as early as July. The dovish remarks from the Fed officials could weigh on the Greenback and provide some support to the USD-denominated commodity price, as a weaker USD makes Gold cheaper for foreign buyers.
Investors brace for the preliminary reading of US S&P Global PMI for June. Any surprise upside in the US economic data could lift the USD and cap the upside for the yellow metal.
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.