Gold Shows Significant Rebound Following Tamer-Than-Expected CPI Data

Gold for February delivery surged has surged $109 or 2.2 percent to $5,032.70 an ounce after plunging $147.90 or 2.9 percent to $4,923.70 an ounce in the previous session. With the rebound, gold has turned positive for the week.

The sharp increase by the price of gold came after the release of the Labor Department’s highly anticipated report on consumer price inflation in the month of January.

The report showed consumer prices rose by slightly less than expected on a monthly basis, while the annual rate of growth slowed by more than anticipated.

The Labor Department said its consumer price index rose by 0.2 percent in January after climbing by 0.3 percent in December. Economists had expected prices to rise by another 0.3 percent.

The annual rate of growth by consumer prices slowed to 2.4 percent in January from 2.7 percent in December, coming in below estimates of 2.5 percent.

Meanwhile, the Labor Department said core consumer prices, which exclude food and energy prices, increased by 0.3 percent in January after rising by 0.2 percent in December, matching expectations.

The annual rate of growth by core consumer prices dipped to 2.5 percent in January from 2.6 percent in December, which was also in line with estimates.

The tamer-than-expected headline inflation data has led to some renewed optimism about the outlook for interest rates and a continued slump by treasury yields.

“This print strengthens the case that the Federal Reserve can maintain a gradual easing bias without fearing renewed inflation pressure,” said Daniela Hathorn, Senior Market Analyst at Capital.com.

She added, “Importantly, while the labor market remains resilient, today’s CPI reduces the risk that strong employment data forces the Fed into a hawkish rethink.”

Nonetheless, the Federal Reserve is still widely expected to leave interest rates unchanged over the next few months before resuming its rates cuts later in the year.

Gold may also have benefitted from modest weakness in the value of the U.S. dollar, with the U.S. dollar index dipping by 0.1 percent.

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