XAU/USD has been trading in a positive trend since Tuesday, surpassing the $5,000 level, rebounding from a sharp decline since last week, but the market sees continued strong buying demand for safe-haven assets.
At 9 am, gold prices were at $5,005, up 1.16% since it opened early Wednesday in the Asian session.
Geopolitical tensions in the Middle East have risen again after the United States (US) military shot down an Iranian drone that was reported to be acting aggressively while approaching the aircraft carrier USS Abraham Lincoln in the Arabian Sea, according to a CNBC report on Tuesday.
The incident occurred as US President Donald Trump was considering possible military action against Iran, thus adding pressure on the global geopolitical landscape.
In a related development, Iran demanded that talks with the US this week be held in Oman instead of Turkey, in addition to limiting the scope of discussions to the nuclear issue bilaterally. This situation is seen as further complicating the already challenging diplomatic efforts.
The market is closely monitoring the developments in the US-Iran talks. Any escalation in tensions could potentially drive inflows into traditional safe-haven assets, particularly gold, in the near term.
However, the upside potential for gold is expected to be limited following the nomination of Kevin Warsh as Federal Reserve (Fed) Chairman.
Warsh is seen as a hawkish candidate and is likely to maintain high interest rates, putting pressure on the yellow metal.
Traders have also reduced expectations for a Fed rate cut following the January pause and the development of the nomination. Based on the CME FedWatch tool, the market is now pricing in a near 66% probability of a rate cut at the June policy meeting.
