Gold drops on U.S. CPI data

Spot gold dropped 0.2% to $4,330.39 an ounce

Gold prices edged lower on Thursday as markets digested softer-than-expected U.S. inflation data, reducing the yellow metal’s appeal as an inflation hedge, while support from a higher November unemployment rate limited further losses.

Spot gold dropped 0.2% to $4,330.39 an ounce as of 19:26 GMT. Bullion hit a record high of $4,381.21 on October 20, and was hovering near these levels earlier in the session.

U.S. gold futures settled 0.2% lower at $4,364.5.

Now that inflation is evidently falling faster than expected, this kind of reduces the appeal of buying insurance for inflation. Gold has been a major inflation hedge, so its weakness makes some sense in the aftermath of the CPI report, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

U.S. consumer prices rose 2.7% year-on-year in November, data showed. Futures on the federal funds rate factored in a slightly increased chance of the U.S. central bank trimming interest rates at its January meeting, after the data.

It is worth remembering that part of the reasons why gold has been rising so sharply over these years has been due to high levels of inflation eroding the value of fiat currencies, Razaqzada added.

Non-yielding assets such as gold thrive in a lower-interest-rate environment, and is a reputed inflation hedge.

The trend is still very much positive in gold and an eventual upside breakout of that trend is anticipated. I’ve got upside objectives at $4,515.63 and $5,000 is still a valid objective as well, said Peter Grant, vice president and senior metals strategist at Zaner Metals.