Gold (XAU/USD) recovered some ground late Wednesday during the North American session, trading at $2,897 as Federal Reserve (Fed) Chair Jerome Powell reinforced the need for restrictive monetary policy amid mounting inflation pressures. Meanwhile, escalating tariff threats from U.S. President Donald Trump added further uncertainty to the market.
The precious metal halted its decline after the U.S. Bureau of Labor Statistics (BLS) reported that inflation exceeded 3%, reinforcing expectations that the Fed may delay its anticipated rate cuts. Last week, traders priced in 40 basis points (bps) of easing by the end of 2024, but following the latest Consumer Price Index (CPI) report, those expectations dropped to 30 bps.
U.S. Treasury bond yields and the U.S. dollar initially surged in response, but the dollar later pared gains, with the U.S. Dollar Index (DXY) settling at 107.98, largely unchanged. Powell, during his testimony before the House of Representatives, reiterated that inflation remains a challenge, stating, “We want to keep policy restrictive for now.” His stance was echoed by Fed officials, including Atlanta Fed President Raphael Bostic, who projected inflation could reach 2% by 2026, and Chicago Fed President Austan Goolsbee, who emphasized that multiple strong inflation readings indicate the Fed’s job is far from complete.
Market Movers: Gold Faces Resistance Amid High Yields
The U.S. 10-year Treasury bond yield climbed 9.5 bps to 4.635%.
U.S. real yields, which typically move inversely to gold prices, increased by nearly 9 bps to 2.157%, pressuring bullion.
The U.S. CPI rose above 3% year-over-year for the first time in six months, exceeding both forecasts and December’s 2.9% increase. Core CPI, which excludes volatile food and energy prices, climbed to 3.3% from 3.2%, above expectations of 3.1%.
Central bank demand for gold remains strong, with the World Gold Council (WGC) reporting over 1,000 tons purchased for the third consecutive year in 2024. Following Trump’s election victory, central bank gold acquisitions surged by 54% year-over-year to 333 tons.Futures markets are now pricing in just 30 bps of Fed rate cuts in 2025.
Technical Outlook: Gold Hovers Near $2,900 Amid Market Uncertainty
Gold’s price action suggests potential for further gains, as back-to-back pin bar formations indicate market indecision. Despite strong CPI data, XAU/USD showed limited volatility after Tuesday’s session, during which it hit a record-high of $2,942 before retreating below $2,900.
The Relative Strength Index (RSI) remains in overbought territory but has stabilized, suggesting a period of consolidation. If gold clears the $2,900 level, resistance targets include the record high of $2,942, followed by key psychological levels at $2,950 and $3,000. On the downside, immediate support is seen at $2,850, followed by the October 31 cycle high and the January 27 swing low of $2,730.
