Gold rises following U.S. inflation data

Dollar inches higher following red-hot U.S. inflation

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New York, Gold rose on Tuesday as consumer prices for March hit their highest level since 1981, a sign to some investors that inflation could be peaking.

Spot gold rose 0.6% at $1,964.89 per ounce after hitting its highest in nearly a month on Monday. U.S. gold futures rose 1.05% at $1,969.

“A higher-than-expected headline U.S. CPI print may nudge spot gold closer to the psychologically important $2,000 level, considering bullion’s time-honored role as an inflation hedge,” said Han Tan, chief market analyst at Exinity.

The dollar index touched above 100, testing last week’s near two-year high of 100.17, while the benchmark 10-year Treasury yield rose to its highest since December 2018.

A stronger dollar makes gold less attractive for other currency holders, while higher U.S. interest rates and yields increase the opportunity cost of holding bullion, which is also used as a hedge against inflationary pressures.

Auto-catalyst metal palladium fell 1.68% to $2,391.25 per ounce, after hitting its highest since March 24 at $2,550.58 on Monday following the suspension of trading of the metal sourced from Russia in the London hub.

The U.S. dollar inched higher on Tuesday as key inflation data reinforced bets of aggressive monetary tightening and signaled to investors inflation.

Following the inflation data, which indicated the consumer price index jumped 8.5% in March, the dollar index edged 0.07% higher to 100. March’s inflation data also showed core CPI rise 6.5% year-over-year, while month-to-month CPI came in lighter than expected.

“USD remains supported due to the Fed’s (Federal Reserve) active monetary policy, but a lot has been priced in as regards monetary policy so that USD is probably going to find it increasingly difficult to appreciate further,” said You-Na Park-Heger, FX Analyst at Commerzbank.

Meanwhile, the euro fell 0.1% to $1.0871, after surging in the previous day to $1.09550 on the news that incumbent President Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.

The dollar’s recent gains against the Japanese yen have been its most striking. The greenback has gained almost 10% versus the Japanese currency in the past three months and was trading at 125.22 yen on Tuesday.

Japanese Finance Minister Shunichi Suzuki said the government was closely watching the yen and that excess volatility and disorderly movements could have an adverse effect on the economy and financial stability.

The dollar also gained on the offshore Chinese yuan, reaching a two-week high of 6.390 before softening.

Following the release of inflation data, U.S. longer-term retreated, with the yield on benchmark 10-year notes dropping 6 basis points to 2.70% after hitting 2.8360%, its highest since December 2018.

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