Gold Breaks Record Levels as Fed Holds Rates and Economic Uncertainty Rises

The Federal Reserve’s decision to keep the funds rate unchanged at 4.25% to 4.5% signals a cautious approach to monetary policy. Chair Powell described the labour market as stable and balanced. This is reflected in the chart below, which shows that the quit rate is at a low of 1.9%. A lower quit rate indicates that workers are not actively switching jobs, which reduces wage pressures and lessens inflation risks.

Therefore, the Fed may not feel immediate pressure to cut rates. This supports the US dollar, as stable employment reduces the need for aggressive policy easing, helping to keep interest rates steady. The US dollar index rebounded from strong support at 107 following the Fed’s interest rate decision but remains highly volatile due to economic uncertainties stemming from President Trump’s tariffs.

Moreover, the Fed’s stance on quantitative tightening (QT) remains firm. The chart below shows that bank reserves stand at $3.33 trillion, indicating an ample supply of liquidity. At the same time, the decline in overnight reverse repo usage signals a shift in liquidity dynamics. As QT persists and overnight reverse repo usage declines, liquidity contraction in 2025 could push US Treasury yields (TNX) higher.

On the other hand, the chart below shows that the Chicago Fed Index has dropped to -0.65, indicating financial liquidity. However, this may change as the Fed continues with QT. The expected liquidity contraction in 2025 may weigh on the bond market, which is bullish for gold (XAU). As long as the labour market remains strong, the Fed will likely keep rate cuts to a minimum. Liquidity trends and labour market data are crucial in shaping future monetary policy decisions. However, gold has broken record levels, opening the door for a move toward $3,000.

Gold’s Bullish Momentum Amid Economic Uncertainty

The gold rally was further strengthened after the release of US GDP data. The data shows weaker-than-expected Q4 GDP growth of 2.3%, signalling a slowing economy. This further reduces pressure on the Fed to keep rates high. The chart below indicates that US GDP was weak, but the growth trend has been consolidating since 2022.

Moreover, initial jobless claims improved to 207K, indicating a resilient labour market. Despite the strong labour market and stable interest rates, economic uncertainties are growing due to President Trump’s imposed tariffs. These uncertainties impact investor sentiment, so investors turn to gold as a hedge, reinforcing its bullish momentum. The release of the U.S. PCE Price Index and Employment Cost Index data on Friday will provide further guidance for the U.S. dollar and gold markets.

Gold (XAU) Technical Analysis

Gold Daily Chart – Breakout from Record Level

The daily chart for gold shows that the price has pushed above the record level, and a new all-time high was set on Thursday. The release of US GDP data on Thursday further supported this rally, resulting in a strong bullish candle. This bullish candle indicates that gold has initiated its next bullish move toward the $3,000 target, which is measured from the resistance line of the ascending broadening wedge.

Gold 4-Hour Chart – Ascending Channel

The 4-hour chart for gold shows that the price has been trading within the ascending channel, demonstrating strength. The strong move was initiated by the reversal from the $2,730 support level. The initial resistance for this rally lies at the ascending channel’s upper boundary, around $2,815.

Treasury Yields (TNX) Technical Analysis

10-Year Treasury Note Yield Daily Chart – Inverted Head and Shoulders

The correction in US Treasury yields from resistance has reached a strong support region. The 50-day SMA further confirms this support. However, the RSI is declining below the mid-level, increasing short-term uncertainty. Despite this, the overall price structure indicates a bullish trend.

10-Year Treasury Note Yield Hourly Chart – Ascending Channel Pattern

The 4-hour chart for US Treasury yields shows that yields have reached the ascending channel’s support of around 4.45%, positioning for a strong rebound. The RSI is also approaching oversold levels, indicating a potential rebound.

US Dollar (DXY) Technical Analysis

UD Dollar Daily – Rebound from 107

The daily chart for the US Dollar Index shows that the price has rebounded from strong support at 107 and is consolidating to determine its next direction. This is a key level; a break below 107 could lead to a decline toward 105.60.

US Dollar 4-Hour Chart – Ascending Broadening Wedge

The 4-hour chart for the US Dollar Index highlights the red zone, where the U.S. dollar has consolidated and exhibited strong volatility. A break below 107 will extend the bearish trend, while a break above 109 will sustain the bullish momentum.