Fed Chairman Jerome Powell’s comments reinforced the view that policy will remain restrictive until inflation shows clearer signs of cooling. This attitude supports higher government bond yields – with the 10-year yield rising to 4.40% – which in turn reduces the attractiveness of gold compared to yield-bearing assets.
A stronger dollar strengthens gold’s struggle
The US dollar remains a formidable obstacle for gold. The dollar index (DXY) reached 107.18 last week, supported by strong economic data and Powell’s hawkish tone. A strong dollar makes gold more expensive for foreign investors, further limiting demand.
For gold to stage a sustained recovery, the dollar must weaken – which will likely require a more dovish turn from the Fed or weaker US economic performance. So far, neither scenario has materialized.
Cooling inflation provides a brief respite
Gold got temporary relief after November PCE inflation data showed a modest increase of 0.1%, below expectations. This led to a 0.4% decline in the dollar, giving gold a brief boost. However, the market viewed the dip as insufficient to change the Fed’s path.
Phillip Streible, chief market strategist at Blue Line Futures, commented:
“Gold needed more than just softer inflation. Traders look for consistent signs of economic slowdown before entering long positions.”
What needs to change for gold to gain momentum?
Gold’s path forward depends on several key factors: