Gold prices in India recently soared to a new high of ₹56,245 per 10 gram in the futures market, surpassing the previous record of ₹56,191 set in August 2020. The yellow metal has rallied from ₹50,000 levels in November due to a pullback in the US dollar and expectations of a slowdown in rate hikes by the Federal Reserve. Meanwhile, gold traded near $1,906 per ounce in global markets and was on track for a fourth consecutive week of gains.

The primary catalyst for gold's recent surge has been the easing of inflationary pressure in the US and expectations for smaller interest rate hikes. Data released on Thursday revealed that US consumer prices fell for the first time in over two years in December, fueling hopes that inflation is now on a sustained downward trajectory. The Labor Department's report showed that US consumer prices grew 6.5% annually in December, in line with expectations, down from a 7.1% increase last month.

Gold is an international commodity priced in US dollars, so a weaker greenback boosts the yellow metal's prices. The US Dollar index has softened from its high of 114 in September to 102 levels.

Additionally, gold's rally has been supported by a pullback in US bond yields. Although the precious metal is considered an inflation hedge, it is highly sensitive to rising interest rates, which increase the opportunity cost of holding the non-yielding bullion.

Ravindra V. Rao, CMT, EPAT, VP-Head Commodity Research at Kotak Securities Ltd., explains that slowing inflation means less aggressive interest rate hikes by the Fed. According to the CME Fed watch tool, the probability of a 25-bps hike in the February FOMC meeting has risen to 92.7%. This has helped gold prices trade above the resistance of $1,884/oz, an 8-month high. On the price action front, COMEX gold has closed above the resistance of $1,884/oz. Bulls might now target the next resistance near $1,920/oz, with support pegged near $1,870/oz. A break of $1,870/oz on closing might indicate a false breakout.

Whether the metal can maintain its upward momentum depends on the Federal Reserve's rate hike decision in its February meeting, says Rahul Kalantri, VP Commodities at Mehta Equities Ltd. The US inflation report met market expectations but is still considered high.

Technically, Jateen Trivedi, VP Research Analyst at LKP Securities, says MCX gold prices have strong support at ₹55,000 and $1,850-1,855 in Comex.

Recession fears in the West and geopolitical tensions have also contributed to the rise in gold prices, according to analysts. Gold is considered a safe haven and often attracts investments during times of uncertainty, slowdown, and recession in the economy.

Axis Securities maintains a neutral stance on gold and recommends a 'Buy-on-Dips' strategy. The brokerage states that gold will continue to be a preferred asset class until uncertainties over the Russia-Ukraine conflict fade and will continue to attract investments as a proven hedge against other asset classes.

Emkay Wealth Management reports that central banks purchased a net 50 tonnes of gold in November, a 47% month-on-month increase. This has led to a rise in demand for the yellow metal, possibly offsetting selling by ETFs. A consistent rise in yields and expectations of Fed rate hikes will keep gold prices in focus. Policy changes, if any, will be at least two quarters away given the persistence of inflation and target levels being quite far from the current inflation reading. Gold is poised to move up with the right indications in interest rates, especially US rates.