Gold prices have posted strong gains in Wednesday’s North American session. Currently, the spot price for an ounce of gold is $1348.04, up 1.41% on the day. On the release front, January consumer inflation beat expectations. CPI jumped 0.5%, above the estimate of 0.3%. Core CPI remained steady at 0.3%, edging above the forecast of 0.2%. Consumer spending reports in January were dismal. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%.
A strong CPI release for January has sent the US dollar lower against the major currencies, and gold has jumped on the bandwagon. Concerns of high inflation was a catalyst for the market sell-off last week, and fears of a resumption in the downward spiral are weighing on the dollar. If investors react negatively and ditch the markets yet again, safe-haven assets like gold will likely be the big winners. Gold prices were down in the first half of February, but gold has recovered these losses, after posting strong gains of 2.4% this week.
What about the Federal Reserve? Currently, the Fed is planning three hikes this year, but that could change to four or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion. The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.
