Price of Gold Plunges to its Lowest in More than 5 Weeks as Dollar Rises

Despite the release of Tuesday's U.S. consumer price index report, gold prices fell on Wednesday, reaching a low for the day since early January, as the U.S. dollar strengthened following the release of Tuesday's U.S. consumer price index report.

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Despite slowing inflation, according to the CPI data, the Federal Reserve may need to increase borrowing costs even further in order to keep inflation in check.

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Price action

• FactSet data show that gold futures for April GC00, -1.18% GCJ23, -1.20% fell $18.20, or 1%, to $1,847.20 per ounce on Comex after trading as low as $1,841.50.

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• Silver futures for March SI00, -1.57% SIH23, -1.59% fell to $21.59, down 28.3 cents or 1.3%.

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• The palladium price for March PAH23, -2.20% delivery fell by $40.20, or 2.7%, to $1,426 per ounce, while the platinum price for April PLJ23, -2.02% dropped by $9.60, or 1%, to $929.60.

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• The price of copper for March HGH23, -1.82% declined by 7.7 cents, or 1.9%, to $3.9985 a pound.

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Market drivers

Traders were anticipating that the Federal Reserve would be able to push its policy interest rate above 5% following the release of Tuesday's U.S. CPI data because the numbers were generally hotter than expected. Because of this, the U.S. dollar advanced following the release of Tuesday's CPI data.

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“Even though inflation in the U.S. is clearly on the decline, Tuesday's report showed that the rate at which consumer prices are rising hasn't slowed down as much as the market was expecting," said Rupert Rowling, a market analyst at Kinesis Money.

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“In response to the Fed's readjustment of how many more rate hikes it is likely to make, gold's price has fallen. As interest rates rise, the prospect of gold losing its appeal diminishes the value of the precious metal since it does not generate a yield for its holders, while other interest-bearing assets are favored instead..”

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As a measure of the dollar's strength against a basket of rival currencies, the ICE U.S. Dollar Index rose 0.7% to 103.965 on Friday.

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Following the strong U.S. jobs report and the Fed's hawkish comments earlier this month, gold, which was already on its knees, has "fallen even further out of favor," according to Fawad Razaqzada, a marketing analyst at City Index and FOREX.com.

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“In the short run, the path of least resistance is still to the downside, and the closest obvious reference point is now at $1,800, and that may be where gold will end up next,” he stated.

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U.S. retail sales also came in stronger than expected, up 3% in January to log the largest gain in almost two years, according to a report released Wednesday. In a poll conducted by Trade Algo, economists were expecting a 1.9% increase in sales this year.

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Although the New York Federal Reserve's Empire State business conditions index, which measures the state's manufacturing activity, rose 27.1 points in February from the previous month to a negative 5.8, the regional Fed bank said Wednesday. There has been a decline in activity for the third month in a row, but it is also a rebound from a drop of 21.7 points in January, which was a cause for concern. In a separate report, the Federal Reserve reported that the U.S. industrial production in January remained unchanged from the previous month.