Gold stabilizes as dollar retreats after US inflation data

Gold stabilized on Wednesday, supported by a weaker dollar following US inflation data, although bullion price gains were offset by improved appetite for riskier assets as consumer price increases were largely in line with expectations.

 

Spot gold was virtually unchanged at $ 1,823.34 an ounce after the biggest one-day gain since mid-December on Tuesday. U.S. gold futures rose 0.2% to $ 1,821.80.

 

US consumer prices rose in December, inflation was nearing its peak in four decades, making gold more attractive as an inflation hedge.

 

The dollar fell to a two-month low after the data was released, making gold more attractive to foreign investors, while the yield on 10-year US bonds was also reduced.

 

Core inflationary data, coming in hotter than expected, supports gold, and we continue to watch this inflationary pressure rise, maintaining gold's hedge status in the weeks ahead, said David Meger, director of metals trading at High Ridge Futures.

 

Meger added that gold could overcome technical resistance around $ 1830.

 

But this was a mixed package for gold, as higher inflation could also reinforce expectations that the US Federal Reserve will raise interest rates, which in turn will increase the opportunity cost of owning non-interest bullion.

 

Growth on Wall Street was also a constraining factor for gold growth, as some investors felt that the Fed may not raise rates as quickly as expected, as the rise in inflation was largely in line with analysts' expectations and was probably estimated.

 

Analysts at TD Securities said in a note that gold's resilience can be attributed to strong physical demand and the fact that markets have already priced almost 3.5 Fed rate hikes by December, as well as more aggressive cuts.

 

Spot silver rose 1.3% to $ 23.05 an ounce, platinum rose 1% to $ 980.77 and palladium rose 1.3% to $ 1,946.61.