Gold steadies, set for best week since February on favorable U.S. CPI

By Ambar Warrick

Investing.com-- Gold prices stuck to a 2-½ month high on Friday and were set for their best week in over eight months as signs of cooling U.S. inflation drove up hopes that the Federal Reserve will trim its pace of interest rate hikes in the coming months.

Metal markets across the board were boosted by a softer-than-expected CPI inflation reading, with expectations for a smaller interest rate hike by the Fed skyrocketing after the data. U.S. CPI inflation grew 7.7% in October, its slowest pace in nine months.

Markets are now pricing in an 85% chance of a 50 basis point hike by the Fed in December, compared to last week’s expectations of a 47% chance.

The dollar sank to its weakest level in nearly three months, while 10-year U.S. Treasury yields fell below 4%, hitting a one-month low.

This served to greatly boost bullion prices, which have been otherwise battered this year as rising interest rates pushed up the opportunity cost of holding non-yielding assets.

Spot gold fell 0.2% to $1,751.92 an ounce, while gold futures fell 0.2% to $1,755.20 an ounce by 19:04 ET (00:04 GMT). Both instruments rallied nearly 3% on Thursday, and were set to gain 4.3% this week - their best performance since late-February.

But even as U.S. inflation showed signs of slowing in October, price pressures still remained well above the Fed’s 2% target. This likely entails more interest rate hikes by the bank, albeit at a smaller pace.

Fed Chair Jerome Powell recently signaled that interest rates could potentially peak at higher levels than expected, and that the Fed is willing to risk some economic damage in its fight against inflation - heralding continued pressure on most assets from higher interest rates.

Industrial metals also surged after the inflation data, with copper prices hovering around 2-½ month highs on Friday.

Copper futures fell 0.2% to $3.7700, but were set to add 2.3% for the week. Prices of the red metal were recently impacted by concerns over sluggish demand in major importer China.

But copper markets are also expected to see tightening supply in the coming months, largely due to disruptions in major producers Chile and Peru.

This is expected to support prices of the red metal in the medium-term.