Gold futures climbed on Wednesday, finding support to trade at their highest level in a week as the U.S. dollar and Treasury yields declined in the wake of stronger-than-expected U.S. consumer inflation data.
Consumer prices rose 0.5% in December to push the increase in the cost of living last year to a nearly 40-year high of 7%, indicating high U.S. inflation is likely to persist well into 2022.
The gain in the consumer-price index exceeded the 0.4% forecast of economists polled by The Wall Street Journal. The data also reinforce the view that inflation is running well above the Federal Reserve’s annual target of 2%.
Following the data, the U.S. dollar fell against most currencies and U.S. benchmark stock indexes traded higher. “It looks like the market had prepared for even hotter inflation, which obviously didn’t materialise,” said Fawad Razaqzada, market analyst at ThinkMarkets. “So the reaction can best be described as relief.”
Concerns about a spike in inflation, brought about partly by supply-chain bottlenecks and swings higher in demand, have helped to support prices of precious metals such as gold and silver in the near term.
Following the CPI numbers, the U.S. dollar, based on the ICE U.S. Dollar index DXY, -0.68%, traded 0.4% lower at 95.211, boosting prices for dollar-denominated gold. The 10-year Treasury note TMUBMUSD10Y, 1.728% traded at 1.733%, down from 1.745% at 3 p.m. Eastern time Tuesday, raising investment appeal for gold, which offers no yield.
The dollar had weakened on Tuesday, as the market absorbed comments from Federal Reserve Chairman Jerome Powell during his confirmation hearing for a second four-year term.
“No fireworks, rather dovish and no surprises,” said Jeff Wright, chief investment officer at Wolfpack Capital, referring to Powell’s comments. It’s “very clear the votes to confirm are already tallied and his confirmation is a foregone conclusion.”
Gold has “done well with Powell’s ‘go slow’ management of the Fed,” he told MarketWatch.
However, Wright said he sees the possibility of an acceleration in the tapering of asset purchases and quantitative tightening on the horizon, “which both would halt any gold rally.”
In Wednesday dealings, February gold GCG22, +0.45% GC00, +0.45% rose $ 4.60, or nearly 0.3%, to reach $ 1,823.10 an ounce, following a 1.1% gain on Tuesday. Prices for the most-active contract are trading at their highest since Jan. 5 and on track to notch a fourth straight session gain, the longest string of gains since a seven-session stretch ended Nov. 12, FactSet data show.
Meanwhile, March silver SIH22, +1.81% SI00, +1.81% was trading 30.3 cents, or 1.3%, lower at $ 23.115 an ounce, after rising 1.6% in the previous session.
On Tuesday, gold prices retained gains after Powell said the central bank’s plans to raise interest rates shouldn’t hurt economic expansion, essentially painting a picture of a “soft landing” rather than a recession.
In his comments Tuesday, Powell also said it would be a “long road” to policy normalization, which “offset to a degree the more hawkish tenor of the recently released FOMC minutes, said Peter Grant, vice president and senior metals strategist at Zaner Metals.
“He also said it may take up to four meetings to work out the parameters of a balance sheet runoff. That would take us into June,” Grant told MarketWatch late Tuesday. “The Fed must tread cautiously, tightening enough to tamp inflation but not so quickly as to adversely impact the fragile labor market.”
“In my opinion, the Fed views full-employment as the more important of its two mandates,” he said. “They’ll be more cautious this year than the minutes may have implied.”
In other Comex trading, March copper HGH22, +3.05% tacked on 3% to $ 4.563 a pound. April platinum PLJ22, +0.57% added 0.8% to $ 981.40 an ounce and March palladium PAH22, -0.66% traded at $ 1,946.50 an ounce, up 1.3%.