Gold price retracts after hitting all-time high amid Powell testimony

• Gold's rally stalls, dropping 0.18% after profit-booking and Fed Powell commentary.
• Fed Chair Powell cites strong economic indicators and sees no immediate need for rate cuts amid trade tensions.
• Future US economic reports and Fed speeches are anticipated to impact Gold's trajectory further.

Gold prices edged lower during the North American session, dropping a minimal 0.18% on Tuesday after hitting a record-high of $2,942 earlier in the session. Heightened tensions due to the trade war sparked by United States (US) President Donald Trump's new tariffs pushed the golden metal to new all-time highs before retreating. XAU/USD trades near $2,900 at the time of writing.

The financial markets' narrative remains unchanged after Trump decided to apply 25% duties on steel and aluminum imported to the United States. Initially, bullion prices edged up, but traders booked profits ahead of Federal Reserve (Fed) Chair Jerome Powell's testimony at the US Senate.

At his hearing, Powell said the Fed is in no rush to reduce borrowing costs due to the economy's strength and that inflation remains above the 2% target. He added that the labor market is "broadly in balance" and that it wasn't a source of inflationary pressure.

When asked whether the US economy would hit a recession, he denied it.

Data-wise, the NFIB Small Business Optimism Index fell to 102.8 in January from 105.1 in December, the highest print since October 2018.

This week, the US economic docket will feature US inflation figures on the consumer and producer sides, along with further Federal Reserve speakers.

Daily digest market movers: Gold price retreats as US Treasury yields rise

• The US 10-year Treasury bond yield edges up three basis points (bps) at 4.531%.
• US real yields, which correlate inversely to Bullion prices, gain one bps sit at 2.079%, a headwind for XAU/USD.
• Bullion has seen increased demand from central banks, with the World Gold Council (WGC) reporting that central banks purchased over 1,000 tons of gold for the third consecutive year in 2024. Following Trump's electoral victory, purchases by central banks surged by more than 54% year-over-year to 333 tons, according to WGC data.
• The New York Fed Survey of Consumers revealed that inflation expectations remain well anchored despite consumers' estimates of inflation at 3% in the near term. Nevertheless, expectations for five years jumped from 2.7% to 3%.
• Cleveland Fed President Beth Hammack preferred maintaining interest rates steady for an extended period so the Federal Reserve could assess economic conditions. She described the current monetary policy as "modestly restrictive" and highlighted the ongoing uncertainty about whether inflation will continue approaching the Fed's target of 2%.
• Last week, US employment data was mixed, though the dip in the Unemployment Rate hints at the strength of the labor market. This might prevent the Fed from cutting rates soon.
• A Reuters poll showed the Fed was expected to wait until the next quarter before cutting rates again
• Money market fed funds rate futures are pricing in 38.5 basis points of easing by the Federal Reserve in 2025.

XAU/USD technical outlook: Gold price retraces and clings to $2,900

Gold price trend is tilted to the upside despite forming a 'doji' near the $2,900 figure after hitting an all-time high of $2,942. This suggests that buyers are reluctant to drive prices higher.

The Relative Strength Index (RSI) suggests that bullish momentum remains, but being at overbought territory opens the door for a pullback.

If XAU/USD drops below $2,900, the first support would be the psychological $2,850 mark. Once surpassed, the October 31 cycle high turned support at $2,790 is up next, ahead of January's 27 swing low of $2,730.

On the other hand, if bulls push prices above the record high, key resistance levels lie ahead like the $2,950 psychological level, followed by the $3,000 mark.