Gold futures finished at the highest level in nearly three weeks after a hotter-than-expected headline inflation reading prompted investors to turn to the precious metal as a hedge against rising prices.
April goldGCJ8, -0.29% surged, gaining $27.60, or 2.1%, to settle at $1,358 an ounce. The gold-backed exchange-traded fund SPDR Gold SharesGLD, +1.71% added 1.7%, while the VanEck Vectors Gold Miners ETFGDX, +4.59%) rose 4.4%.
The ICE U.S. Dollar IndexDXY, -0.04%is off 0.6%. Precious metals, which are often pegged to dollars, tend to rise when the buck weakens because a falling dollar can make buying those assets cheaper for investors using strengthening monetary units.
The yield on 10-year Treasury notesTMUBMUSD10Y, +0.54%shot up to 2.91%, trading at a four-year high.
Rising yields, in theory, should detract from the appetite for gold because precious metals don't bear a yield. However, accelerating inflation could also provide a lift for gold over the short term because it is often viewed as a hedge against inflation. Gold had been moving higher over the last few days after the futures contract erased 1.6% last week in its worst performance in two months.
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The consumer-price index leapt 0.5% in January, the biggest increase in five months. Higher consumer prices in January, however, didn't substantially alter the overall picture on inflation. The increase in the CPI over the past 12 months remained unchanged at 2.1%.
Still, "the CPI report falls into the camp of the U.S. monetary-policy hawks, who would likewell to see the Federal Reserve raise interest rates at a faster pace, likely four small increases in 2018," said Jim Wyckoff, senior analyst at metals trading firm Kitco.com.
After stripping out volatile gas and food, the more closely followed core rate of inflation rose 0.3% last month. The 12-month rate of core inflation was also flat at 1.8%. And importantly, inflation-adjusted U.S. wages declined by 0.2% in January. The Fed is closely watching wage-induced inflation risks.
Jeffrey Nichols, managing director at American Precious Metals Advisors in New York, said aside from the CPI, there are other indicators of a stronger U.S. economy such as the employment data. "Importantly, the gold-bulls have been disappointed over and over again...and many in the pro-gold community are just looking for reasons to jump back and start buying gold again. Renewed stock market uncertainties are also priming the market," he said. "In the end, it all boils down to expectations of Fed interest-rate policy-and growing belief the Fed will tighten more than previously believed."
U.S. stocks which had initially retreated following the CPI data recovered, setting the Dow on track for its fourth straight session of gains. Global equity markets have been recovering from their inflation-sparked selloff earlier this month.
However, sales at U.S. retailers fell by 0.3% in January-the biggest drop in almost a year-chiefly due to declines at auto dealers and home centers which could throw cold water on attempts by stocks to push higher.
"In this case [after the data], we could see a renewed wave of selling on the stock markets for fear that the Federal Reserve might raise interest rates faster and more sharply. This could spark a renewed flight into havens, which would benefit gold," said Carsten Fritsch, commodities analyst at Commerzbank.
In other metals trading, March silverSIH8, -0.23% climbed 35 cents, or 2.1%, to end at $16.878 an ounce, while the silver-focused iShares Silver TrustSLV, +1.86% rose 1.7%. March copperHGH8, -0.14%picked up 7.35 cents, or 2.3, to end at $3.236 a pound, April platinumPLJ8, +0.23% added $23.40, or 2.4%, to finish at $999.10 an ounce and March palladiumPAH8, -0.03% rose $16.60, or 1.7%, to settle at $997.30 an ounce.