Gold prices muted as markets weigh mixed inflation reading

By Ambar Warrick

Investing.com -- Gold prices moved little on Wednesday as mixed inflation data for January brewed some uncertainty over the U.S. economy and the path of monetary policy, with the dollar also showing a muted reaction to the readings.

Prices of the yellow metal steadied near one-month lows after data showed annualized U.S. consumer inflation fell less than expected in January. On a monthly basis, inflation accelerated in January from the prior month.

While some facets of consumer price index inflation were stickier than expected, core inflation retreated in January, albeit at a slower-than-expected pace. Still, the data showed that disinflation was not as widespread as initially perceived, with inflation remaining relatively elevated.

Traders were now watching to see how the Federal Reserve would react to the data, given that the central bank has maintained a largely hawkish rhetoric against inflation. But with inflation remaining stubborn, the Fed is likely to keep raising interest rates in the near-term.

Spot gold was flat at $1,854.66 an ounce, while Gold futures fell slightly to $1,864.75 an ounce by 19:20 ET (00:20 GMT). Both instruments were trading just above one-month lows.

The dollar showed a muted reaction to the inflation data, and retreated slightly against a basket of currencies.

Still, the prospect of rising interest rates bodes poorly for gold and other non-yielding assets, given that it increases the opportunity cost of investing in such assets.

But the yellow metal could benefit from increased safe haven demand this year, as rising interest rates and relatively high inflation increase the potential for an economic slowdown this year. U.S. readings on business activity already paint a dour picture of the world’s largest economy.

The prospect of a recession has also pushed up bets that the Fed could eventually pause its interest rate hikes this year.

Other precious metals were also steady on Wednesday. Platinum futures were flat at $935.75 an ounce, while silver futures fell 0.1% to $21.848 an ounce.

Among industrial metals, copper prices fell slightly on Wednesday, but marked strong gains this week as they recovered from three straight weeks of losses.

High-grade copper futures fell 0.2% to $4.0795 a pound after rallying nearly 1% in the prior session.

Prices of the red metal are largely pinned to a rebound in Chinese demand this year, after the country relaxed most anti-COVID restrictions. But analysts warned that such a rise in imports to the world’s largest commodity consumer is yet to be seen.