Gold prices have jumped during the North American session, reaching a record high of $5,412. This surge follows the Federal Reserve’s choice to keep interest rates steady, despite two members who wanted a rate cut. Fed Chair Jerome Powell emphasized a cautious approach, highlighting the need to rely on data while expressing concerns about ongoing inflation and the job market. The US Dollar Index (DXY) rose by 0.58%, reaching 96.37, partly due to trade tensions affecting the market. Gold has reached new heights even as US Treasury yields have increased, underscoring its status as a safe-haven asset during economic uncertainty.

Federal Reserve’s Statement

The Federal Reserve’s announcement confirmed that inflation rates remain high. A divided vote of 10-2 decided to keep rates between 3.50% and 3.75%. Current money market data suggests a 95% chance that the Fed will maintain these rates for a while, with the possibility of a 46 basis points cut later this year. Gold prices have risen 24% this year, driven by high demand during uncertain times. Prices could possibly reach $5,500, with support levels at $5,250 and $5,200 if values fall below $5,300. Last year, gold prices soared dramatically around this time, nearing $5,400. This jump was triggered by just two dissenting votes in the Fed, hinting at a potential policy shift. This serves as a key reminder of how quickly market sentiment can change and how sensitive gold is to signs of monetary easing. The important takeaway from the 2025 rally is that volatility can increase unexpectedly, making futures trading risky. In the weeks ahead, traders may want to consider using options, such as buying calls, to anticipate a breakout above current resistance while managing risk. With gold now stabilizing around $5,150, implied volatility is lower than during last year’s peak, making options trading more cost-effective.

Federal Reserve Easing Cycle

The financial landscape has shifted as those 2025 dissenters anticipated. The Federal Reserve has started its easing cycle, with the current Fed funds rate between 3.00% and 3.25%. Looking ahead, the CME FedWatch Tool indicates a greater than 70% chance of a 25-basis-point cut by the March meeting, which should support gold prices. Last year, gold rose even as Treasury yields increased, which was unusual. Today, this trend appears more typical, as the 10-year Treasury yield has dropped to 3.85%, benefiting non-yielding gold. Recent data shows Core PCE has cooled to 2.8% year-over-year, much lower than the levels Fed Chair Powell was concerned about in 2025. Geopolitical risks are still important, although the focus has shifted. Last year, worries centered on tensions with Iran, while now, the spotlight is on heightened naval activities in the South China Sea. This shift continues to drive safe-haven demand for gold, providing a solid foundation for the market. For traders, the critical technical levels have flipped since last year. The previous support level of $5,200 has turned into the first major resistance to watch in the weeks ahead. A strong break above this key level could signal the next upward movement, attracting momentum buyers who fueled the 2025 rally. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now