- Gold halts losses despite US CPI jumping above 3% in January.
- Traders slash Fed rate-cut bets to just 30 bps for 2025.
- US Dollar erases gains after Powell and Fed officials stay hawkish.
Gold price recovered some ground late during Wednesday’s North American session. Federal Reserve (Fed) Chair Jerome Powell said that policy needs to remain restrictive as inflationary pressures mount and United States (US) President Donald Trump’s tariff threats intensify. XAU/USD trades at $2,897, virtually unchanged.
The non-yielding metal halted its downtrend after the US Bureau of Labor Statistics (BLS) revealed that inflation jumped above 3% in the United States, suggesting that the Fed’s pause on its easing cycle could be longer than expected.
Last week, the December fed funds rate futures contract showed that traders expected 40 basis points (bps) of easing. After the CPI, those expectations were adjusted to just 30 bps of rate cuts by the end of the year.
US Treasury bond yields and the Greenback reacted to the upside. Nevertheless, the US Dollar (USD) lost some steam and erased post-CPI gains, sitting at 107.98, virtually unchanged as portrayed by the US Dollar Index (DXY).
Earlier, Fed Chair Jerome Powell finished his testimony at the US House of Representatives. He said that the job on inflation is not completed, and he added, “So we want to keep policy restrictive for now.”
Atlanta’s Fed President Raphael Bostic echoed some of his words, saying that if the economy evolves as expected, inflation could get to 2% in 2026. Chicago’s Fed President Austan Goolsbee added that multiple inflation readings like January’s would ratify that the “job is clearly not done.”
Daily digest market movers: Gold price holds rally capped by high US yields
- The US 10-year Treasury bond yield edges up nine and a half basis points (bps) at 4.635%.
- US real yields, which correlate inversely to Bullion prices, surge almost nine bps up to 2.157%, a headwind for XAU/USD.
- The US Consumer Price Index (CPI) climbed above 3% YoY for the first time in six months, exceeding forecasts and December’s 2.9% increase. This rise underscores the ongoing challenge the Federal Reserve faces in controlling inflation. Core CPI, which excludes volatile items, rose by 3.3% YoY up from 3.2%, above forecasts of 3.1%.
- Bullion has seen increased demand from central banks, with the World Gold Council (WGC) reporting that central banks purchased over 1,000 tons of gold for the third consecutive year in 2024. Following Trump’s electoral victory, purchases by central banks surged by more than 54% year-over-year to 333 tons, according to WGC data.
- Money market fed funds rate futures are pricing in 30 basis points of easing by the Federal Reserve in 2025.
XAU/USD technical outlook: Gold price hovers around $2,900
Price action hints that Gold’s is poised for further gains after printing ‘back-to-back’ pin bars, an indication of some indecision. Although US CPI data was hot, XAU/USD was not set for a volatile reaction following Tuesday’s trading day, in which Gold hit a record-high of $2,942 before plunging below $2,900.
The Relative Strength Index (RSI) shifted flat despite being in overbought territory, opening the door for some consolidation.
If XAU/USD clears the $2,900 mark, key resistance is at a record high, followed by the psychological price levels of $2,950 and $3,000. Conversely, if Gold tumbles, the first support would be the $2,850, followed by the October 31 cycle high turned support at $2 and January’s 27 swing low of $2,730.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Source: https://www.fxstreet.com/news/gold-price-steadies-as-powell-stands-firm-on-restrictive-policy-202502122051