Gold prices slipped on Thursday, pulling away from the previous session’s two-and-a-half week highs posted after mixed U.S. economic reports dampened expectations for a more aggressive rate hike policy by the Federal Reserve.
The precious metal initially dropped as the U.S. dollar moved higher after the Commerce Department reported on Wednesday that consumer prices rose more than expected in January by 0.5%. Year-over-year, consumer prices increased 2.1% higher last month, beating expectations for a gain of 1.9%.
Rising inflation would be a catalyst to push the Fed toward raising interest rates at a faster pace than currently expected.
However, the greenback’s gains were short lived as a separate report showing that U.S. retail sales fell 0.3% in January, compared to expectations for a 0.2% rise, sparked concerns that the Fed could struggle to raise rates quickly enough to offset inflation pressures.
Gold is sensitive to moves in both U.S. rates and the dollar. A weaker dollar makes gold less expensive for holders of foreign currency, while a rise in U.S. rates lifts the opportunity cost of holding non-yielding assets such as bullion.
On Thursday morning, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.18% at 88.74, its lowest since February 2.
Elsewhere on the Comex, silver futures were down 0.11% at $16.87 a troy ounce.