Gold prices surged above $2,700 on Thursday, buoyed by a weaker U.S. Dollar and dovish comments from Federal Reserve Governor Christopher Waller, who indicated that the central bank could reduce borrowing costs sooner than expected.
At the time of writing, gold (XAU/USD) was trading at $2,715, up 0.72%, following a series of economic data releases that pointed to a resilient U.S. economy, despite some mixed retail sales figures. As traders anticipate a possible rate cut in March, U.S. bond yields fell, providing additional support for the precious metal.
U.S. Economic Data and Jobless Claims Pressure the Dollar
Data from the U.S. revealed that retail sales for December fell short of analysts’ expectations, rising by just 0.4% month-over-month, compared to the anticipated 0.6%. However, the November figures were revised upward from 0.7% to 0.8%, suggesting that consumer spending remains robust.
In addition, the number of Americans filing for unemployment insurance increased for the first time since early December 2024, weighing on the U.S. Dollar. The U.S. Dollar Index (DXY), which tracks the currency’s performance against a basket of six major peers, slipped 0.14%, dipping below the 109.00 mark.
Fed Governor Waller’s Dovish Remarks Spark Market Optimism
The gold rally was further fueled by dovish comments from Fed Governor Waller, who stated that the central bank could accelerate rate cuts if the disinflation process continues to progress. Waller’s remarks gave traders confidence that the Fed may ease monetary policy sooner rather than later, particularly as inflation approaches the Fed’s 2% target.
Waller’s comments aligned with market expectations, with some traders now pricing in the possibility of two rate cuts by the end of 2025, with the first reduction potentially coming as early as June.
Falling Yields and Economic Outlook
U.S. Treasury yields also saw a notable decline, with the 10-year Treasury Inflation-Protected Securities (TIPS) yield dropping for the second consecutive day, falling from 2.234% to 2.18%. The U.S. 10-year Treasury bond yield decreased by 5 basis points, to 4.604%, further supporting the bullish momentum in gold.
Despite the mixed retail sales report, the labor market showed signs of strain, as initial jobless claims for the week ending January 10 rose to 217,000, higher than the estimated 210,000. The combination of weaker-than-expected data and a shift in the Fed’s stance helped undermine the U.S. Dollar, boosting demand for gold.
Gold’s Technical Outlook
Gold’s uptrend continued for the third consecutive day, surpassing the critical $2,700 level. The next key resistance is located at $2,726, the high from December 12. Should this level be breached, gold may continue its climb toward $2,750, with an eye on the all-time high (ATH) of $2,790.
On the downside, if gold falls below the $2,700 mark, the next level of support will be at $2,656, the low from January 13. Further downside could test the confluence of the 50-day and 100-day Simple Moving Averages (SMAs) at $2,639 to $2,642.
Conclusion
As market participants continue to digest the latest economic data and Waller’s comments, attention will turn to upcoming housing data, including building permits and housing starts. With the economic calendar light for the remainder of the day, traders will remain focused on potential shifts in Fed policy, particularly as President-elect Donald Trump’s inauguration approaches.
Gold’s strong performance reflects ongoing uncertainty in the global economy, with the precious metal continuing to serve as a safe haven amid fluctuating market conditions.
