Gary Wagner, a commodities broker and market analyst, told Kitco that gold prices were under pressure as investors digested higher-than-expected inflation data and congressional testimony from Federal Reserve Chairman Jerome Powell, in which he emphasized a cautious approach to rate cuts.
The Bureau of Labor Statistics' Consumer Price Index (CPI) for January rose 0.5%, up from December's 0.4% gain and beating the consensus forecast of 0.3%. The core CPI, which excludes volatile food and energy prices, rose 0.4% in January - double December's 0.2% gain and above the consensus forecast of 0.3%.
During his second day of congressional testimony, Powell continued to assert before the House Financial Services Committee that the Fed would proceed with rate cuts in a slow and deliberate manner this year. Before the Senate Banking, Housing and Urban Affairs Committee, he emphasized that the Fed was in no rush to cut rates because the economy remained strong and inflation remained above its 2% target.
According to the CME FedWatch tool, the market is currently pricing in a 97.5% chance that the Fed will leave its target rate unchanged at 4.25%-4.50%. Looking ahead to the Federal Open Market Committee (FOMC) meeting in May, there is an 86.8% chance that rates will remain unchanged.
Analysts at Saxo Bank forecast just one rate cut this year, expected at the September FOMC meeting.
Gold futures for April delivery hit an all-time high of $2,968.50 an ounce on Tuesday. However, the high was short-lived as prices fell to $2,907 an ounce before closing at $2,926.50. The downward pressure continued into Wednesday, with gold closing at $2,924.90 an ounce at 4:55 p.m. EST, down slightly by $2.00. The U.S. dollar index was little changed, up 0.03% to 107.98.
However, the market recorded a remarkable move when traders quickly bought when gold prices fell to $2,886.5/ounce, showing strong support for the precious metal. Strong buying pressure pushed the April contract price up $38 at the end of the session, reflecting strong investor confidence despite the short-term correction in gold prices.
Meanwhile, Jim Wyckoff, senior analyst at Kitco, said that gold prices quickly recovered after falling due to hotter-than-expected CPI data showing that safe-haven demand for gold remains strong, despite high inflation reports - a factor that often causes US bond yields to rise and boosts the USD index.
The market reaction showed investors were focused on rising inflation and monetary policy. As a result, optimism remained high as gold continued to act as a hedge against economic uncertainty. While Powell’s remarks and better-than-expected inflation data did dampen gold’s gains, the rapid rebound from the day’s lows showed investors were still holding on to the precious metal amid economic and geopolitical uncertainty.
The price action of gold over the past two days has confirmed that investors still see it as a safe haven against persistent inflationary pressures and the Fed’s shift to tighter monetary policy. The price action shows that gold remains well supported despite short-term volatility.
