Gold traded above $5,050 in Europe on Wednesday, supported by a weaker US Dollar near a two-week low and expectations of further Federal Reserve rate cuts. Traders were cautious ahead of the US Nonfarm Payrolls report, while broader risk appetite limited demand for safe-haven assets.
US Retail Sales were unchanged in December, after a 0.6% rise in November and below the 0.4% increase expected. Money markets price 58 basis points of Fed easing in 2026, pressuring the Dollar.
Fed Independence In Focus
Comments on Fed independence added focus after President Donald Trump said he might sue Fed chair nominee Kevin Warsh if rates were not lowered. Fed Governor Stephen Miran said 100% central bank independence is impossible, while regional Fed Presidents Lorie Logan and Beth Hammack made more hawkish remarks.
Logan said the labour market is stabilising and inflation has been above the 2% target for nearly five years, with policy close to neutral. Hammack said the target rate is near neutral and could stay on hold “for quite some time” as inflation remains high and tariffs remain a factor.
Technically, gold held above the rising 200-period 4-hour SMA, with RSI at 56 and MACD still positive but losing momentum. A move above $5,090 is watched for follow-through.
Gold is getting a boost as we price in more interest rate cuts from the Federal Reserve this year, pushing the US Dollar to a two-week low. The flat retail sales report from December 2025 started this trend, which has now been confirmed by fresh data. This situation creates a clear tailwind for gold prices in the near term.
Weak Growth Versus Sticky Inflation
The economic weakness is becoming more apparent, making the case for Fed easing stronger. Last week’s Nonfarm Payrolls report for January showed job growth of only 145,000, missing expectations and signaling a cooling labor market. This followed a US Census Bureau report that January retail sales fell by 0.3%, further cementing the view that the Fed will have to act soon.
However, some Fed officials remain cautious, pointing out that inflation is still a problem. We saw in January’s data that core inflation remains stubbornly high at 3.1% year-over-year, giving credence to their view that policy might be on hold for a while. This push and pull between weak growth data and sticky inflation creates uncertainty that traders must navigate.
For derivative traders, this environment suggests using options to position for a potential breakout while managing risk. Buying call spreads with strike prices above the $5,090 resistance level could be a cost-effective way to capture upside if upcoming data forces the Fed’s hand. Implied volatility will likely rise ahead of the next Fed meeting, making it prudent to establish positions now.
We have seen this pattern before, such as in the lead-up to the Fed’s easing cycle in 2019. During that period, gold rallied significantly in the months *before* the first rate cut as the market began to anticipate the policy shift. The current setup, with markets pricing in 58 basis points of cuts, echoes that historical precedent.
From a technical standpoint, the strategy should be to buy on dips as long as the price holds above key moving averages. The fading momentum on the MACD indicator suggests we shouldn’t chase the price aggressively at these levels. Instead, look for pullbacks as opportunities to enter long positions, using a sustained break below the 200-period moving average on the 4-hour chart as a clear stop-loss signal.
