Fed Chair Jerome Powell’s comments reinforced the view that policy will remain restrictive until inflation shows clearer signs of cooling. This stance supports higher Treasury yields – with the 10-year yield climbing to 4.40% – which in turn reduces gold’s attractiveness compared to yield-bearing assets​.

Strengthening Dollar Amplifies Gold’s Struggles

The U.S. dollar remains a formidable obstacle for gold. The dollar index (DXY) reached 107.18 last week, buoyed 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 mount a sustainable recovery, the dollar must weaken – likely requiring a more dovish pivot from the Fed or weaker economic performance in the U.S. So far, neither scenario has materialized.

Cooling Inflation Provides Brief Respite

Gold received temporary relief after November’s PCE inflation data showed a modest 0.1% increase, below expectations​. This led to a 0.4% drop in the dollar, briefly boosting gold. However, the market viewed the dip as insufficient to alter the Fed’s path.

Phillip Streible, Chief Market Strategist at Blue Line Futures, commented:
“Gold needed more than just softer inflation. Traders are watching for consistent signs of economic slowdown before committing to long positions.”

What Needs to Change for Gold to Gain Momentum?

Gold’s path forward hinges on several key factors: