Gold prices climbed nearly 2 percent on Wednesday, rebounding from early losses that followed stronger-than-expected U.S. inflation data, as the dollar surrendered gains and equities swung higher. 

The dollar initially rose after the U.S. Labor Department report showed U.S. consumer prices increased more than expected in January, and traders bet the U.S. Federal Reserve would boost interest rates faster than previously forecast. However, softer-than-forecast retail sales data and an immediate pullback in equities markets sparked concern that the Fed would struggle to raise rates quickly enough to offset inflation pressures. 

Spot gold was up 1.7 percent at $1,351.81 per ounce by 1:37 p.m. EST (1837 GMT), after reaching $1,355.08, its highest since Jan. 26. U.S. gold futures for April delivery settled up $27.60 per ounce, or 2.1 percent, at $1,358.

Bullion was on track for its strongest daily performance since May 2017. Inflation fears generally prompt investors to buy the precious metal.

"Gold investors are looking into gold as a hedge against inflation and higher inflation expectations are boosting an interest in gold," said Suki Cooper, precious metals analyst at Standard Chartered Bank.

U.S. stocks fell immediately after the inflation report, then rebounded and traded higher in the afternoon. In addition to the strong inflation numbers, market watchers noted a surprise drop in January retail sales. "Given the weak retail sales report alongside (the inflation data), the markets are probably going to talk about stagflation, where you are getting stronger inflation but not really getting a stronger consumer," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. 

"Those two in tandem might be leading to this flattener in Treasuries, though retail sales are pretty volatile."

Stock markets, which scaled record peaks in recent months, slid sharply last week, dragging gold prices as investors sought refuge in the U.S. dollar.

Meanwhile, silver was up 1.9 percent at $16.86 an ounce after hitting a one-week high of $16.98. 


Original source: Reuters