Gold Rises on Inflation Signs

Gold futures on Monday traded modestly higher as signs of growing inflation helped bolster prices. A packed week of economic data and a meeting of the Federal Reserve may also influence the trajectory of the yellow metal.

A closely watched reading on the labor market is due on Friday and a two-day meeting of the Fed is set to kick off Tuesday. Both key events, among others, could alter expectations for interest-rate increases, drive the dollar and assets pegged to it like gold.

On Monday, February gold GCG7, +0.32% the front-month contract, was up $4.10, or 0.4%, at $1,192.30 an ounce, and the most active contract for April GCJ7, +0.33%  also was trading around the same level.

Early Monday, a reading of consumer inflation, as measured by the Fed’s preferred metric, personal-consumption expenditures, rose in December to the strongest reading in more than two years. The PCE rose 0.2% and the overall annual rate rose to 1.6%, marking the best rate since September 2014, the Commerce Department data show. Consumer spending also rose 0.5% in the month, matching Wall Street estimates, but representing the biggest spending increase in December since the past month of 2009.

Gold tends to be viewed as a hedge against rising inflation.

The yellow metal ended lower Friday for a fourth day in a row, losing more than 1% for the week as strength in the dollar and recent all-time highs in major U.S. stock indexes dulled demand for haven investments.

The ICE U.S. Dollar Index DXY, +0.37% a gauge of the buck against a basket of 6 currencies, was gaining modestly early Monday in New York, up 0.3% at 100.84. A stronger dollar can make assets priced in the currency more expensive to buyers using other monetary units.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza