Gold (XAU/USD) ticked higher on Friday after a softer US CPI report raised expectations that the Federal Reserve will cut interest rates. Gold traded near $5,000, after sliding to around $4,880 the day before.
Gold had already pulled back from record highs near $5,600, as higher volatility made traders less willing to hold aggressive long positions. On Thursday, Gold dropped about 3.5% and Silver (XAG/USD) fell nearly 11.5%. Stocks and cryptocurrencies also declined.
In January, headline CPI rose 0.2% month over month. That was below expectations and down from 0.3% in December. Year over year, CPI eased to 2.4% from 2.7%, also below the 2.5% forecast.
Core CPI (excluding food and energy) increased 0.3% month over month, matching expectations and up from 0.2%. Annual core inflation slipped to 2.5% from 2.6%, in line with forecasts.
After the report, the US Dollar fell and Treasury yields dropped. Markets priced in more than 50 basis points of rate cuts this year. Geopolitical tensions and steady central-bank buying also supported demand.
On the daily chart, price stayed above the 20-day SMA and the middle Bollinger Band at $4,969.20. The Bollinger Bands remain wide (upper $5,350.76; lower $4,587.64). RSI is 53.92. Support sits near $4,800 and $4,588, while resistance is in the $5,000 to $5,100 area.
The cooler inflation data has meaningfully changed expectations for Fed policy. CME Group’s FedWatch Tool shows the market now sees more than an 85% chance of a June rate cut, up from about 60% a week ago. This shift toward easier policy makes non-yielding gold more attractive and is the main reason price has moved back toward $5,000.
This move is also backed by strong underlying demand that has been in place for some time. In 2025, global central banks bought more than 1,000 metric tons of gold for a third straight year. That buying has helped put a firm floor under the market. Much of it reflects a push to reduce reliance on the US dollar, especially as geopolitical frictions continue. It also helps absorb sharp pullbacks.
Still, the recent one-day drop of 3.5% from the record high near $5,600 has made traders more cautious. The Gold Volatility Index (GVZ) is near 25, well above its long-term average around 16, which makes options more expensive. That suggests traders still think prices can rise, but they are also paying up for protection against another sharp move lower.
With volatility this high, derivatives traders may prefer strategies that can benefit from a large move in either direction. With price clustering around $5,000 and Bollinger Bands widening, long straddles or strangles could work well in the coming weeks. These trades would gain from a clean break above $5,100 or a sharp reversal back toward support near $4,800.
If you think the recent peak was only a short-term top, high implied volatility can also favor premium-selling strategies. One approach is to use bear call spreads with strikes well above $5,400. This lets traders collect income while keeping risk defined. It is based on the view that the market may need time to consolidate before it can challenge the record highs again.
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