Gold price defies strong US Dollar amid soft US CPI report
- Gold climbs above $2,930 as safe-haven demand overcomes rising US yields
- Softer US CPI supports bets on Fed rate cuts, fueling Gold’s rally despite USD rebound.
- Trade war fears persist; US Treasury yields rise on concerns of renewed inflation pressure from tariffs.
- Central banks continue aggressive Gold purchases, underpinning bullish sentiment.
Gold price rises late in the North American session, unfazed by high US Treasury bond yields and a stronger US Dollar on Wednesday. At the time of writing, XAU/USD trades with gains of 0.63% and changes hands at $2,933 after a US inflation report that was softer than projected.
The US Bureau of Labor Statistics (BLS) revealed that consumer inflation in the United States (US) edged lower in February. Nevertheless, investors remain skeptical of the improvement as aggressive tariffs on US imports could trigger a second round of inflation.
February’s data increased the odds that the Federal Reserve (Fed) might cut interest rates thrice in 2025. Nevertheless, Fed officials, led by Chair Jerome Powell, had expressed that they do not look at just one month of data.
In the meantime, US Treasury yields climbed amid fears that the global trade war could push prices higher. Consequently, the US Dollar Index (DXY), which tracks the Greenback’s value against six currencies, gains 0.14% to 103.55.
On Wednesday, 25% US tariffs on steel and aluminum took effect at midnight as US President Donald Trump is battling to reduce the trade deficit by applying duties on imports.
The non-yielding metal is poised to extend its rally, even though there is progress on a truce between Ukraine and Russia.
The World Gold Council (WGC) revealed that central banks continued to purchase Gold. The People’s Bank of China (PBoC) and the National Bank of Poland (NBP) added 10 and 29 tonnes in the first two months of 2025, respectively.
Given the backdrop, Gold is set to test the $2,950 mark. Traders will eye the release of the US Producer Price Index (PPI) for February, Initial Jobless Claims and the University of Michigan (UoM) Consumer Sentiment.
Daily digest market movers: Gold price shrugs of high US yields
- The US 10-year Treasury bond yield recovers and rises three basis points to 4.314%.
- US real yields, as measured by the US 10-year Treasury Inflation-Protected Securities (TIPS) yield that correlates inversely to Gold prices, climb one basis points to 1.981%, capping non-yielding metal gains.
- The US Consumer Price Index (CPI) for February increased 2.8% YoY, slightly below the expected 2.9% and down from 3.0% in January, indicating continued moderation in inflation.
- Core CPI, which strips out volatile food and energy prices, dipped from 3.3% in January to 3.1% YoY, reinforcing signs of continued disinflation in the U.S. economy.
- The Atlanta Fed GDPNow model predicts the first quarter of 2025 at -2.4%, which would be the first negative print since the COVID-19 pandemic.
- Money market traders had priced in 71 basis points of easing in 2025, down from 77 bps a day ago, via data from Prime Market Terminal.
XAU/USD technical outlook: Gold prolongs its rally past $2,930
Gold price has cleared the top of the $2,880 - $2,930 trading range and hit a two-week peak of $2,940 with buyers eyeing $2,950 as the next key resistance level before clearing the record high at $2,954. Once surpassed, Gold would be poised to challenge $3,000.
Conversely, if XAU/USD drops below $2,900, the next support would be $2,850, ahead of the February 28 low of $2,832. Up next would be $2,800.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.