Gold price gains 1% as US inflation data dents Treasury yields

Spot gold rose 1.0% to $1,976.14 per ounce by 12:20 p.m. ET, its highest in over two weeks. US gold futures saw a larger gain of 1.5%, trading at $1,977.00 per ounce in New York.

The latest inflation data shows US consumer price index rose 8.5% in March from a year earlier, the fastest pace since 1981 and just above the median forecast of economists.

However, core measures of consumer price gains — which excludes some volatile components — came in lower forecasted, driving expectations that the US Federal Reserve may not need to be as aggressive in its tightening policy in the longer term.

“The report provides some optimism that inflation could be peaking here. … That might help the Fed be a little bit less aggressive and tightening policy down the road,” Edward Moya, senior market analyst with OANDA, told Reuters.

But Moya added that “this doesn’t change anything over the short term,” with the US central bank still expected to raise interest rates by a hefty 50 basis points next month to tame inflation.

The possibility of a rapid policy tightening have weighed on gold in recent weeks, even as the metal has been buoyed by demand for safe havens amid the war in Ukraine. Investors have moving cautiously over the prospect of large rate hikes by the Fed, as it attempts to contain the hottest inflation in 40 years.

Charles Evans, the Fed Bank of Chicago president who has long been one of the US central bank’s more dovish policy makers, said an accelerated pace of interest-rate increases to combat inflation is worth debating.

Meanwhile, Fed Governor Christopher Waller stated it’s doing all it can to avoid “collateral damage” from raising interest rates, a “brute-force tool” that can act as a “hammer” on the economy.

The likelihood of aggressive policy measures has also sparked concerns the Fed may make a policy error and cause a recession, in turn bolstering safe-haven gold, analysts said.

On Tuesday, benchmark 10-year Treasury yields declined from near the highest since 2018 following the print, as the traders eased back bets on drastic action to contain prices pressures. The lower yields added support for gold, as it bears no interest.

Reporter: Fezeh Sahfiei Dero'ei