Gold hits 4-month high
Gold prices aimed for fresh four-month highs on Friday although their upside was limited after a stronger-than-expected inflation reading helped drive up Treasury yields.
With gas and food stripped out, the so-called core rate of consumer inflation rose a sharper 0.3% in December, a notch above the MarketWatch forecast and the highest reading in almost a year, government data showed. Nascent inflation has been a chief factor in keeping the Federal Reserve’s interest-rate reversal slow and steady and continues to color the debate over how aggressive the Fed will be this year with rate hikes.
After the data, February gold GCG8, +0.69% rose $4.50, or 0.4%, to $1,327.30 an ounce. A close at this level would be the strongest settlement for a most-active contract since Sept. 14, according to FactSet data. Gold is now looking at a weekly gain of around 0.4%, while month-to-date the metal is up 1.5%.
Inflation is a two-pronged influence on gold prices. Traditionally, the yellow metal has been seen as a hedge against inflation’s erosive effects on other assets and some analysts think the metal will regain this function as inflation picks up this year. That said, the impact from inflation in pushing up yields can make nonyielding bullion less attractive in a rising-rate environment.
Reported separately, retail sales rose 0.4% in December, falling just short of the 0.5% MarketWatch consensus estimate. Excluding cars, sales also increased 0.4%, beating expectations of 0.3%.
The ICE U.S. Dollar Index DXY, -0.67% — a gauge of the greenback against a half-dozen rivals — fell 0.6% as the dollar traded at its lowest against the euro in about three years. A weaker dollar can boost the appeal of gold as an investment, as most commodities are priced in dollars.
“The recent move in gold has been almost entirely correlated to dollar weakness, which continues to remain the main focus,” said Peter Hug, global trading director at Kitco.
He expects stronger Asian demand for gold ahead of the Chinese New Year, but said retail demand in North America, for the time being, remains anemic.
“The $1,322 area now becomes support, with the next resistance level for gold around the $1,338 area. A break through here suggests a possible move to $1,347,” he said.