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Gold prices (XAU/USD) rose nearly 1% on Thursday as the U.S. dollar weakened, despite elevated Core PCE inflation data suggesting the Federal Reserve (Fed) may maintain higher interest rates for an extended period. The Core PCE, a key inflation metric, remained above the Fed's 2% target, reinforcing expectations of a 'higher-for-longer' rate environment. However, the dollar's recent strength stalled, allowing gold to gain traction as investors sought safe-haven assets amid uncertainty about the Fed's policy trajectory. Meanwhile, U.S. President Donald Trump's public calls for lower interest rates contrast with the central bank's data-dependent approach, creating a tug-of-war between political pressures and economic fundamentals.
The dollar's retreat and gold's rebound highlight shifting market dynamics. A weaker dollar typically boosts gold prices, as the metal is priced in U.S. currency. The Fed's potential rate-hold stance, combined with Trump's advocacy for rate cuts, introduces volatility into the dollar's direction. Traders are closely monitoring upcoming economic data and Fed communications for clues about the central bank's next move. For gold, the current technical setup suggests further gains if the dollar continues to weaken, but risks remain if inflation data surprises to the upside.
For Gulf and MENA investors, the dollar-gold relationship is critical. A prolonged weaker dollar could enhance gold's appeal as a hedge against currency depreciation and geopolitical risks in the region. Investors should watch the Fed's response to inflation and Trump's influence on monetary policy, as these factors will shape both the dollar and gold in the near term. Key levels to monitor include $2,000 for gold and the 1.0600 psychological threshold for the EUR/USD.
