Gold prices experienced a recovery on Wednesday during the North American session, as inflationary pressures in the United States remained elevated. XAU/USD was trading at $2,897, virtually unchanged, after a volatile day marked by significant economic updates and Federal Reserve commentary.
Inflation Data Pushes Gold Higher
The U.S. Bureau of Labor Statistics (BLS) reported that inflation in the U.S. surpassed 3% for the first time in six months, triggering market adjustments. This uptick in the Consumer Price Index (CPI) suggests that the Federal Reserve’s pause on its easing cycle could be extended longer than previously expected. As inflation continues to challenge the U.S. economy, gold, a traditional safe-haven asset, regained some ground as investors hedged against ongoing uncertainties.
Fed’s Stance on Inflation and Rate Cuts
Federal Reserve Chairman Jerome Powell’s testimony before the U.S. House of Representatives emphasized the central bank’s commitment to maintaining restrictive monetary policy until inflation is under control. Powell stated that the “job on inflation is not completed” and emphasized the need for ongoing restrictive measures. His comments were echoed by other Federal Reserve officials, including Atlanta’s Fed President Raphael Bostic, who suggested that inflation could reach the target 2% level by 2026 if the economy evolves as expected.
As a result, market expectations for rate cuts by the end of 2025 were revised downward. After the CPI data, traders adjusted their expectations to 30 basis points (bps) of easing, down from 40 bps.
Bond Yields and Dollar Reaction
In response to the hot CPI data, U.S. Treasury bond yields edged higher, with the 10-year yield rising by 9.5 basis points to 4.635%. Real yields, which typically have an inverse relationship with gold prices, also surged, reaching 2.157%, adding downward pressure on gold. However, the U.S. Dollar (USD) saw mixed reactions, erasing post-CPI gains and settling at 107.98, as reflected by the U.S. Dollar Index (DXY).
Gold Price Technical Outlook
Despite these headwinds, gold’s price action suggests it is poised for further gains. The market showed signs of indecision, with “back-to-back” pin bars indicating potential consolidation at current levels. Although the U.S. CPI data was hotter than expected, the gold market did not react with extreme volatility.
Gold reached a record high of $2,942 before retreating below $2,900, but it still holds near these elevated levels. If gold clears the $2,900 mark, the next resistance levels are at the record high, followed by key psychological levels at $2,950 and $3,000. On the downside, the first support level is around $2,850, followed by the October 31 cycle high turned support at $2,830, and the January 27 swing low at $2,730.
Gold Demand From Central Banks
Amid economic uncertainty, central banks have been increasing their gold reserves. The World Gold Council (WGC) reported that central banks bought over 1,000 tons of gold for the third consecutive year in 2024, with purchases surging by more than 54% year-over-year following Trump’s electoral victory. This sustained demand highlights gold’s role as a store of value and safe-haven asset during times of geopolitical and economic volatility.
Outlook for Gold Prices
Looking ahead, analysts continue to expect gold to benefit from both inflationary pressures and global economic uncertainties. The Federal Reserve’s stance on interest rates and its focus on controlling inflation will likely remain a key driver for gold in the near term. The broader market dynamics, including geopolitical tensions and trade-related risks, will also continue to support demand for gold as a hedge against instability.
For traders and investors, the current gold price consolidation suggests potential for both short-term corrections and long-term gains, making it essential to monitor inflation data and Federal Reserve policy closely.
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