Gold soars over 2% as U.S. inflation data cements Fed slowdown bets

(Reuters) - Gold prices rallied over 2% on Thursday to a more than two-month high as data showed U.S. inflation cooled off a bit in October, lifting hopes that the Federal Reserve would adopt a less aggressive approach to rate hikes.

FILE PHOTO: Marked ingots of 99.99 percent pure gold are placed in a cart at the Krastsvetmet non-ferrous metals plant in the Siberian city of Krasnoyarsk, Russia March 10, 2022. REUTERS/Alexander Manzyuk

The U.S. consumer price index (CPI) rose 0.4% last month after climbing by the same margin in September, the Labor Department said. Economists polled by Reuters had forecast an advance of 0.6%.

Spot gold climbed 2.7% to $1,751.61 per ounce by 13:44 EDT (1844 GMT). U.S. gold futures settled up 2.3% at $1,753.7.

“When we start to see inflationary data showing that inflation is coming down, there is an expectation that the Fed is going to begin to slow the pace of those interest rate hikes,” said David Meger, director of metals trading at High Ridge Futures.

“Hence you could argue that the dramatic pressure that has been applied to the gold market over the last several months has been released and gold now has the ability to move higher.”

Following the U.S. data, the dollar dropped 2% to a near two-month low, making gold less expensive for other currency holders. Benchmark U.S. 10-year Treasury yields slipped to a one-month low.

Fed fund futures are now pricing in a 73.5% chance of a 50-basis-point hike at the Fed’s policy meeting in December.

Gold is highly sensitive to U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion.

“A cool inflation report has made markets confident that the Fed can downshift to half-point rate hiking pace and possibly be done with tightening after the March FOMC meeting,” said Edward Moya, senior analyst with OANDA, in a note.

“Gold is breaking out here and it could have a steady path towards the $1,800 level if dollar weakness remains.”

Silver advanced 3.1% to $21.65 per ounce. Platinum jumped 5.4% to $1,038.09, its highest since March. Palladium rallied 5.5% to $1,966.50.

Reporting by Brijesh Patel in Bengaluru; additional reporting by Swati Verma; Editing by Devika Syamnath and Shailesh Kuber