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Metals Stocks: Gold ends at highest since April as U.S. CPI reading ‘marks the beginning of the end for high inflation’

Gold prices settled Thursday at their highest in more than eight months after a closely watched reading on the U.S. consumer-price index signaled a further slowdown in inflation at the end of 2022.

Price action

Gold futures for February delivery
GC00,
+1.15%

GCG23,
+1.15%

gained $19.90, or 1.1%, to settle at $1,898.80 an ounce on Comex, after trading as high as $1,906.50. It settled at the highest for a most-active contract since April, according to FactSet data.

March silver
SI00,
+2.25%

SIH23,
+2.25%

rose by 52 cents, or 2.2%, to $24.004 per ounce.

Palladium for March
PAH23,
+0.42%

gained $9.80, or nearly 0.6%, to $1,790.90 per ounce, while platinum for April
PLJ23,
-0.23%

ended flat at $1,084.30 per ounce.

March copper
HG00,
+0.34%

HGH23,
+0.34%

added 3 cents, or 0.7%, $4.1965 per pound, marking another finish at its highest since June.

Market drivers

Gold futures touched highs above $1,900 an ounce Thursday after the U.S. CPI data met with market expectations and implied a slowdown in the pace of Fed interest-rate hikes.

Treasury yields fell and U.S. dollar weakened “across the board, so gold [reacted] by going higher,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. Lower bond yields and a weakening dollar can make commodities priced in the U.S. currency more attractive to buyers, compared against other assets.

The U.S. cost of living fell 0.1% in December — matching a decline forecast by economists polled by The Wall Street Journal and marking the first fall since the onset of the pandemic in 2020.

The CPI report “marks the beginning of the end for high inflation,” said Jason Schenker, president of Prestige Economics, in emailed commentary. “Inflationary pressures eased significantly in December, as the trend of falling year-on-year inflationary rates continued.”

The annual rate of inflation fell for the sixth month in a row to 6.5% from 7.1% . That’s the lowest level in more than a year. The advance in the core rate of inflation, which omits food and energy, fell to 5.7% from 6%.

“With both measures of consumer inflation high, this clears the way for further Fed rate hikes,” including a likely rate hike on Feb. 1, “but the level of rate hikes is likely to be more modest,” said Schenker.

News reports said Boston Fed President Susan Collins on Wednesday said she was leaning toward a quarter-point interest rate increase at the Fed’s next meeting, but also said a 25 of 50 basis point hike would be “reasonable.”

See also: Fed’s Harker backs pushing interest rates slightly above 5% and then pausing

So far this year, gold prices have been bolstered, in part, by a softer dollar and lower Treasury yields. Fears of a looming recession in the U.S., coupled with hopes for improved buying out of China, have also contributed to the rally, analysts said.

The three most significant factors contributing to gold’s price strength so far this year are “China buying,” U.S. dollar weakness, and falling U.S. Treasury yields, said Paul Wong, market strategist at Sprott Asset Management.

He said China buying refers to official purchases of the precious metal, which include the country’s central bank – the People’s Bank of China, and other non-central bank entities.

“No one knows which entity is buying so aggressively and why,” Wong said. It’s a “bit of a mystery because of the implied size” of more than 300 metric tons over the last months of 2022.

Despite gold’s climb, however, Wright believes prices for the metal “does not have much further room to run before profit taking stalls the recent momentum, in particular, if a risk-on trade returns.”

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