Gold advances as US-Iran framework deal, weaker Dollar support rebound
- Gold extends the rebound that started on Thursday from the $4,024 area, gaining nearly 3% on Monday.
- Markets welcome a framework agreement between the United States and Iran aimed at ending the war.
- A weaker US Dollar and expectations surrounding the Fed meeting are also supporting precious metals.
Gold (XAU/USD) trades around $4,340 at the time of writing on Monday, up 2.86% on the day and extending the rebound that began on Thursday from the $4,024 area. The precious metal is reaching its highest level in a week as investors reassess the implications of the newly announced agreement between the United States (US) and Iran.
Financial markets are reacting positively to news that Washington and Tehran have reached a framework agreement designed to end the war. US President Donald Trump stated that the Strait of Hormuz will be reopened as part of the deal, while Iran’s Deputy Foreign Minister also confirmed the announcement. According to several media reports, the ceasefire that has been in place since April is expected to be extended, allowing both sides to continue negotiations.
The announcement has triggered a sharp improvement in market sentiment. US equity index futures are rising between 1% and 2%, while Crude Oil prices are falling significantly as investors anticipate a gradual normalization of global energy flows following the reopening of the Strait of Hormuz.
At the same time, the US Dollar (USD) remains under pressure. The US Dollar Index (DXY) is down around 0.3% and trades near 99.50 after opening the week with a bearish gap. The weakness of the Greenback is providing additional support for Gold, making the metal more attractive for buyers using other currencies.
Investors are also focusing on the Federal Reserve (Fed) monetary policy meeting later this week. Before that, markets will closely monitor the release of the Fed of New York’s Empire State Manufacturing Survey and US Industrial Production data. Any signals regarding the health of the US economy and the future path of interest rates could influence Gold’s direction in the coming days.
Despite the improvement in the geopolitical backdrop, some sources of caution remain. Lebanese media continue to report Israeli strikes in southern Lebanon after the announcement of the agreement, while the full text of the deal has not yet been published. This lingering uncertainty is helping to sustain safe-haven demand for the yellow metal, which continues to attract investors seeking protection against geopolitical risks.
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.