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US dollar index, geopolitical tension and gold price

Gold is often seen as a hedge against currency depreciation, particularly against the US dollar. When the dollar strengthens, gold prices typically decrease, and vice versa. However, on Tuesday, despite the US dollar’s consolidation (which implies it maintained its value without significant movement), gold prices rebounded. This suggests that other factors beyond the strength or weakness of the dollar are influencing the gold market.
The reference to the "higher-for-longer” US rate mantra suggests that investors anticipate interest rates in the US to remain elevated for an extended period. This expectation exerts selling pressure on gold. Gold, being a non-interest-bearing asset, becomes less attractive compared to interest-bearing assets when interest rates are rising. Investors may prefer assets that offer potential returns through interest or dividends rather than holding gold, which does not generate income.
On the other hand, Geopolitical tensions, especially in regions like the Middle East, often lead to increased demand for safe-haven assets like gold. Escalating tensions can create uncertainty and instability in financial markets, prompting investors to seek refuge in assets perceived as safer stores of value. Gold is historically considered a safe-haven asset due to its intrinsic value, limited supply, and lack of dependence on any specific government or economy.

Dr. Kamaran Qader Yaqub
Financial consultant at Investment Spot Company 

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