Gold holds ground at 2-month high as U.S. inflation tops 2%

Published: Jan 18, 2017 11:02 a.m. ET

Consumer price data is on tap

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Gold prices held ground at their highest levels in about two months Wednesday as data showing that U.S. inflation topped 2% in 2016 and uncertainty surrounding President-elect Donald Trump’s inauguration and the U.K.’s exit from the European Union raised the precious metal’s investment appeal.

Gold for February delivery GCG7, -0.09%  tacked on $2, or 0.2%, to $1,214.90 an ounce. It climbed 1.4% Tuesday to settle at its highest level since Nov. 17, according to FactSet data.

Silver for March delivery SIH7, +0.77%  added 10.2 cents, or 0.6%, to $17.25 an ounce.

“There’s so much news screaming for attention right now, investors are struggling to tell the signal from the noise,” said Adrian Ash, head of research at BullionVault.

“Trump‘s now calling for a weaker dollar but inflation has already breached the Fed’s 2% target,” he said. “That makes gold look good for 2017, because as real interest rates fall, the currency will devalue at a faster rate.”

On Wednesday, data showed that the consumer price index jumped 0.3% in December, matching the MarketWatch forecast. Inflation for 2016 rose by 2.1%—the biggest increase since 2011.

The ICE U.S. Dollar Index DXY, +0.54%  was trading up by less than 0.3% Wednesday, but it’s still lost about 0.6% week to date after dropping Tuesday. Gold and the dollar typically move inversely since a richer greenback cuts demand for the dollar-priced metal from buyers using other currencies.

In an interview with The Wall Street Journal on Friday, Trump said the dollar, which touched a more than 14-year high about two weeks ago, has gotten “too strong,” as China keeps its own yuan weaker. He said the dollar’s strength is impeding the competitiveness of U.S. companies.

“The newswires were quick to attribute the move to comments from [Trump], who said the greenback is ‘too strong’ … In fact, it started some time earlier and seems to mark the return of ‘Trump trade’ unwinding as the dominant market theme after it had been briefly overshadowed by ‘hard Brexit’ fears at the start of the week,” said Ilya Spivak, currency strategist with Daily FX. On Tuesday, British Prime Minister Theresa May said the U.K. would move ahead to vote on a clean cut with the European Union but hoped to negotiate trade deals.

Meanwhile, more economic data and Federal Reserve chatter could keep financial markets busy ahead of the U.S. presidential inauguration on Friday.

Investors will be watching a speech from Fed Chairwoman Yellen on the goals of monetary policy, due at 3 p.m. Eastern time. Ahead of that, Minneapolis Fed President Neel Kashkari will make an economic-themed speech at 11 a.m. Eastern.

In ETF trading, the SPDR Gold Trust GLD, -0.29%   fell less than 0.1%, the iShares Silver Trust SLV, +0.43%   added 0.7% and the VanEck Vectors Gold Miners ETF GDX, -0.28%  gained 0.3%.

Back on Comex, March copper HGH7, -0.44%  fell by half a cent to $2.62 a pound. April PLJ7, -1.13%  traded at $975.90 an ounce, down $7.20, or 0.7%, while March palladium PAH7, -0.44%  fell 70 cents, or 0.1%, to $752.30 an ounce.