Gold approaches $5,000 after US CPI misses expectations

US CPI puts Fed rate-cut timing in focus

Elevated volatility in the precious metals space is keeping bulls from adding aggressive long positions after the recent correction in Gold's price from record highs around $5,600. Gold fell around 3.5% on Thursday, while Silver (XAG/USD) slumped nearly 11.5%, as broad-based outflows hit risk assets alongside equities and cryptocurrencies.

US inflation came in softer than expected in January. Headline CPI rose 0.2% on the month, below market expectations and easing from December’s 0.3% increase. On a yearly basis, CPI slowed to 2.4% from 2.7%, undershooting forecasts of 2.5%.

CPI excluding food and energy rose 0.3% MoM, in line with expectations and up from 0.2% previously, while the annual core rate eased slightly to 2.5% from 2.6%, matching market forecasts.

In reaction to the data, the US Dollar (USD) gave up its earlier gains and US Treasury yields extended their decline, as traders priced in more than 50 basis points (bps) of easing this year, lending additional support to the non-yielding metal.

At the same time, the broader macro backdrop remains supportive, with persistent geopolitical tensions and continued central-bank buying underpinning demand.

Technical analysis: XAU/USD consolidates near the $5,000 handle

XAU/USD remains in consolidation on the daily chart after the sharp pullback from record highs. Prices are hovering above the 20-day simple moving average (SMA), which also aligns with the middle Bollinger Band at $4,969.20.

Bollinger Bands continue to widen, with the upper band at $5,350.76 and the lower band at $4,587.64, indicating elevated volatility as price gravitates toward the middle line. The Relative Strength Index (RSI) at 53.92 is neutral, signalling balanced momentum.

A failure to sustain gains above the 20-day SMA would keep downside pressure in place, with initial support seen around the $4,800 zone, followed by the lower Bollinger Band near $4,588.
On the upside, bulls would need a clear break above the $5,000-$5,100 area to revive bullish momentum.

(The technical analysis of this story was written with the help of an AI tool.)

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.