Gold hits $1,900 first time since May as U.S. consumer prices slow

By Barani Krishnan

Investing.com - Gold breached $1,900 an ounce the first time in eight months after the growth in U.S. consumer prices slowed as forecast in December, aiding the Federal Reserve’s aim of continuing with smaller rate hikes to rein in inflation.

Gold for February delivery on New York’s Comex settled at $1,898.80 per ounce, up $19.90, or 1.04%. The session high of $1,905 was the loftiest level for Comex gold since May, when it got to a peak of $1,910.20.

The benchmark U.S. gold futures contract has risen more than 4% since the start of the year, extending its near 4% gain from December and 7% from November.

The spot price of gold, more closely followed than futures by some traders, was at $1,898.05 by 14:13 ET (19:13 GMT) — up $22.47, or 1.2%. Spot gold’s intraday peak was $1,901.69 — also the highest since May.

U.S. consumer prices rose by 6.5% in the 12 months to December, the Labor Department said Thursday, announcing the slowest inflationary growth in more than a year and indicating smaller rate hikes ahead by the Federal Reserve, which raised rates aggressively last year to curb price pressures.

The Consumer Price Index for All Urban Consumers, known in short as the CPI, slowed exactly as forecast by economists, after a 7.1% annual growth reported for November.

“This was the smallest 12-month increase since the period ending October 2021,” the Labor Department said in a news release.

The CPI hit a 40-year high in June when it grew at an annual rate of 9.1%, versus the Fed's inflation target of just 2% per annum. In a bid to control surging prices, the central bank added 425 basis points to interest rates since March via seven rate hikes. Prior to that, interest rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global COVID-19 outbreak in 2020. The Fed, which executed four back-to-back jumbo rate hikes of 75 basis points from June through November, imposed a more modest 50-basis point increase in December.

For its next rate decision on Feb. 1, economists expect the central bank to announce an even smaller hike of 25 basis points.

The Fed funds rate — a tool used to gauge the odds for a certain quantum of rate hike — was at over 80% on Thursday for a Fed increase of 25 basis points in February. The dollar, which rises as US interest rates spike and falls as they slow, was at a six-month low versus a basket of six major currencies that included the euro and the yen.

“The Fed funds market is now more confident in 25 bps at 81% for the Feb 1 meeting and the US dollar is now sinking,” economist Adam Button said in a post on the ForexLive forum.

The last time the Fed announced a 25 basis-point increase was in March 2022, at the start of its current rate hike cycle.