The Wall Street Journal: Gold knocked lower by hotter inflation reading then trims loss

Gold futures prices did an about-face lower Wednesday after hotter-than-expected headline inflation data pushed the dollar and U.S. Treasury yields higher.

Gold had since pared its deepest losses of the day.

April gold GCJ8, +1.11% slipped a narrow 60 cents, or less than 0.1%, to $1,329.80 an ounce. The gold-backed exchange-traded fund SPDR Gold Shares GLD, +1.09% eased 0.1%, while the VanEck Vectors Gold Miners ETF GDX, +3.55%  rose 0.2%.

The ICE U.S. Dollar Index DXY, -0.22% rose 0.3%.

The consumer-price index leaped 0.5% in January to mark the biggest increase in five months. Higher consumer prices in January, however, didn’t substantially alter the overall picture on inflation. The increase in the CPI over the past 12 months remained unchanged at 2.1%.

Still, ”the CPI report falls into the camp of the U.S. monetary policy hawks, who would like to see the Federal Reserve raise interest rates at a faster pace, likely four small increases in 2018,” said Jim Wyckoff, senior analyst at metals trading firm Kitco.com.

After stripping out volatile gas and food, the more closely followed core rate of inflation rose 0.3% last month. The 12-month rate of core inflation was also flat at 1.8%. And importantly, inflation-adjusted U.S. wages declined by 0.2% in January. The Fed is closely watching wage-induced inflation risks.

“This data point will be closely watched to see if gold can hold $1,325 or goes in either direction sharply,” said Jeff Wright, chief investment officer at Wolfpack Capital.

Precious metals, which are often pegged to dollars, tend to rise when the buck weakens because a falling dollar can make buying those assets cheaper for investors using stronger monetary units.

Rising yields, in theory, should detract from appetite for gold because precious metals don’t bear a yield. However, rising inflation could provide a lift for gold over the short term because it is often viewed as a hedge against rising prices. Gold had been improving over the last few days after the futures contract erased 1.6% last week in its worst performance in two months.

Check out: MarketWatch’s Economic Calendar

The yield on 10-year Treasury notes TMUBMUSD10Y, +1.64% shot up to 2.882% after the data but was still trading below the four-year high of 2.891% hit Monday.

Read : This chart warns that the 30-year downtrend in interest rates may be over

U.S. stock futures pointed to a gain at the open, although were off their best levels after the data, setting the Dow on track for its fourth up day in a row. Global equity markets have been recovering from their inflation-sparked selloff earlier this month.

Also impacting stocks and the broader financial markets, sales at U.S. retailers fell by 0.3% in January — the biggest drop in almost a year — chiefly due to declines at auto dealers and home centers. And a previously reported increase in sales in December was wiped out.

“In this case [after the data], we could see a renewed wave of selling on the stock markets for fear that the Federal Reserve might raise interest rates faster and more sharply. This could spark a renewed flight into safe havens, which would benefit gold,” said Carsten Fritsch, commodities analyst at Commerzbank.

In other metals trading, March silver SIH8, +1.16%  fell 0.6% to $16.430 an ounce, while the silver-focused iShares Silver Trust SLV, +1.25%  was flat. March copper HGH8, +0.82%  fell 0.1% to $3.1600 a pound, April platinum PLJ8, +1.69%  added 0.4% to $980.10 an ounce and March palladium PAH8, +1.30%  rose 0.3% to $984.10 an ounce.

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