Gold Rallies on Lukewarm U.S. Consumer Price Index Data

The past couple of months have been hard on precious metals such as gold, which usually fared well when the economy falters. Traditionally in high demand during times of economic upheaval because its value generally does not diminish, gold has seen its performance drop amid increasing inflation and a surging dollar.

However, projections for the last few months of the year and 2023 have been hopeful, stating that gold will perform much better than it has in 2022. Last week, gold and silver saw prices in the United States surge after officials released a lukewarm Consumer Price Index (CPI) data report. Gold prices reached a four-month high, with February gold going up by $29.50 to $1,821.

The recently released inflation report revealed that conditions were tamer than expected, showing a CPI rise of 0.1% from October and an overall 7.1% year-on-year increase. This was slightly lower than the predicted 0.3% increase from October and a 7.3% year-on-year increase.  As a result, the financial, stock and metal markets saw a significant but short rally, which quickly lost steam while the U.S. dollar index went down.

The recent lukewarm CPI report was a win for U.S. monetary policy doves who would like the Federal Reserve to loosen its increasingly aggressive monetary policy. The Fed has raised the benchmark interest rate for several consecutive months as part of its ongoing efforts to tame inflation, but this has increased fears of economic recession.

With the year drawing to a close, the Fed is expected to increase interest rates by 0.5%, pushing benchmark borrowing rates to 4.25-4.5%. This move will likely be followed by the Bank of England and European Central Bank, which meet shortly after the Fed meets.

According to Religare Broking VP of technical research Ajit Mishra, markets will be looking at the U.S. Fed for cues on whether it will slow its interest rate hike. Furthermore, Mishra noted that markets will also be keeping an eye on U.S. CPI data, stating that the trajectory of inflation and interest rates by the Fed could have a major role in the upward trend of gold prices.

Gold stocks have seen their prices rally amid the cooler-than-expected report, and commodity market experts predict that this upward trend in prices will likely continue into the next year.

Experts also predict that despite facing some consolidation over the next few sessions, they expect gold to bounce back. This revival will possibly further bolster the books of extraction companies such as Royal Gold Inc. (NASDAQ: RGLD).

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