Gold Gains as Oil Slump Eases Policy Jitters

Key Moments

Gold Price Supported by Softer Inflation Fears

Gold price (XAU/USD) is extending its upward move for a second consecutive session, changing hands near 4,103 per troy ounce during Asian trading on Monday. The precious metal is drawing support from a steep pullback in oil prices, which has eased concerns about renewed inflation pressure and the prospect of additional interest rate hikes. The gains follow a weekend lull in military activity between the United States and Iran, which has also helped calm broader risk sentiment.

Policy Decisions and Data Set Up Volatile Trading Week

Market participants are bracing for a dense sequence of macroeconomic and policy events that could inject fresh volatility into global assets. The calendar includes closely watched monetary policy announcements from the Federal Reserve (Fed), the Bank of England (BoE), and the Bank of Japan (BoJ). In addition, upcoming releases such as US GDP, US core PCE inflation, and consumer price index readings from the Eurozone and Australia are expected to play a pivotal role in shaping expectations for the future path of interest rates worldwide.

US-Iran Tensions Cool, Offering Breathing Space for Markets

On the geopolitical front, investors are reacting to a pause in hostilities that has eased immediate escalation risks. The United States halted its two-week bombing campaign against Iran late Friday, and Tehran has in turn refrained from launching retaliatory strikes against US-aligned partners in the Middle East for a second straight night.

US Ambassador to the United Nations Mike Waltz said that American forces remain prepared for action, but that President Donald Trump is seeking to preserve room for possible talks. Reuters reported a similar tone, citing a senior Iranian official who reiterated that Tehran’s approach is based on an “attack for attack” principle, implying that Iranian military actions would remain suspended so long as US operations are on hold.

Gold as a Safe Haven and Policy Hedge

Gold continues to be viewed as a key safe-haven instrument and a hedge during periods of volatility, inflation risk, and currency weakness. Beyond its role in jewelry and its historical significance as a store of value, the metal is widely used by investors seeking protection against turbulence in financial markets and against the erosion of purchasing power.

Central banks remain the largest collective holders of gold, using it as part of their reserve management strategies. By diversifying into gold, policymakers aim to bolster confidence in their economies and currencies. According to data from the World Gold Council, central banks added 1,136 tonnes of gold worth around $70 billion to their reserves in 2022, the highest annual purchase since records began. Institutions from emerging markets, including China, India, and Turkey, have been rapidly increasing their holdings.

Relationship With Currencies, Bonds, and Risk Assets

Gold typically shows an inverse relationship with the US Dollar and US Treasuries, both of which are also considered reserve and safe-haven assets. When the Dollar weakens, gold often benefits as investors and central banks seek diversification, especially in uncertain conditions.

The metal also tends to move opposite to risk assets. Strong rallies in equity markets can weigh on gold, while downturns and risk-off periods frequently drive demand for the metal higher.

Key Drivers of Gold Prices

Gold prices are influenced by a broad range of factors. Periods of geopolitical strain or heightened fears of a deep economic downturn can fuel strong demand due to its safe-haven status. As a non-yielding asset, gold generally reacts positively to lower interest rates, while rising borrowing costs can be a headwind.

Movements in the US Dollar (USD) are especially important, as gold is priced in dollars (XAU/USD). A firm Dollar tends to restrain gold prices, whereas a softer Dollar environment usually supports upward moves in the metal.