Gold Prices Get a Boost from Tame Inflation Data

Gold prices headed higher on Wednesday after government data showed the smallest annual increase in consumer inflation in well over a year, giving the Federal Reserve more reason to hold off on raising interest rates.

Precious Metals Rise

Gold for April delivery climbed $2.50, or 0.2%, to $1,316.50 a troy ounce on the Comex division of the New York Mercantile Exchange. Bullion peaked at $1,321.70 on Wednesday, its highest in nearly two weeks.

Silver futures peaked at $15.80 a troy ounce, a new weekly high. The March contract was last seen trading at $15.78 a troy ounce, having gained 9 cents, or 0.6%.

Precious metals have seen their gains evaporate over the past two weeks, as an ascendant U.S. dollar pressured commodity prices. Gold and silver appear to be stabilizing this week despite the greenback’s continued strength. The U.S. dollar index (DXY), which measures the performance of the greenback against a basket of six rivals, rose 0.3% to 96.99.

Risk of Inflation Has Diminished

U.S. consumer prices flat-lined in January for a third month in a row, as volatile oil prices kept inflation in check. The consumer price index (CPI) remained unchanged in January, the Department of Labor reported Wednesday, confounding expectations for a 0.1% increase. In annualized terms, CPI rose just 1.6%, the weakest in over a year.

Stripping away food and energy costs, the so-called core consumer price index nudged up 0.2% in January and 2.2% annually, official data showed.

Following a volatile fourth quarter that saw stock markets plunge and global economic risks escalate, the Federal Reserve last month stressed ‘patience’ in normalizing monetary policy. The January policy statement signaled a dramatic shift in guidance from last year, when central bankers voted to raise interest rates four times. According to Fed Fund futures prices, the central bank is more likely to cut interest rates before raising them again.

The latest batch of CPI data echoed recent comments by Fed Chair Jerome Powell, who said the risks of higher inflation have diminished. This comes despite strong labor market fundamentals and continued economic growth.

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Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi