Gold Rallies after Muted US Inflation Data Drives Treasury Yields Lower

Gold Rallies after Muted US Inflation Data Drives Treasury Yields Lower”

USA consumer prices recorded their biggest increase in eight months in September as gasoline prices soared in the wake of hurricane-related refinery disruptions, but underlying inflation remained muted.

U.S. Treasury yields dipped and the dollar pared gains on Thursday as investors waited on U.S. inflation data while Wall Street stock indexes were largely unchanged as earnings season kicked off with a whimper.

It also added to concerns about the Fed's ability to raise interest rates at the end of the year.

The Fed tracks the personal consumption expenditures price index excluding food and energy, which has consistently undershot the USA central bank's 2 percent target for more than five years.

However, stripping out the rise in energy and weather impact, underlying inflation and sales failed to pack the punch many had expected and the dollar fell on reduced expectations of a December rate hike.

The Fed needs to mount a clear defence of its 2 percent inflation target and stop raising rates until the pace of price increases strengthens, St. Louis Fed President James Bullard said on Thursday. In October, consumers said they expected 2.3% inflation over the next year, down from 2.7% in September. However, when food and energy were stripped out, the core CPI increased only 0.1 percent, or 1.7 percent on a year-on-year basis. Earlier in the week, the newly released minutes of the Fed's September meeting said central bank members were anxious about muted inflation figures.

In a separate report, the Commerce Department said retail sales jumped 1.6 per cent in September. This may lead to increased global risk aversion.

Gold was on track for its first weekly rise in five weeks on Friday after weak U.S. inflation undermined the case for interest rate rises, pushing the dollar and USA bond yields lower.

Benchmark 10-year notes last rose 6/32 in price to yield 2.3248 percent, from 2.345 percent late on Wednesday.

Last month, food prices rose 0.1 percent after a similar gain in August.

Germany's inflation held steady, as initially estimated, in September, final data from Destatis showed Friday. From a year earlier, core prices rose 1.7%, maintaining the same annual rate since May.

Republican lawmakers are considering indirect paths to meeting President Donald Trump's goal of slashing the corporate tax rate to 20 percent, one of the toughest challenges they face in trying to overhaul the US tax code. Imports averaged 8.5 million bpd between January and September.

Finally, oil prices retreated from their highs in relief that President Trump did not immediately seek to impose sanctions on Iran.

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