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Gold prices jump higher as U.S. inflation cools more than expected with 0.1% rise in November

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(Kitco News) - Cooling inflation is helping to drive gold prices sharply higher as markets see the Federal Reserve slowing the pace of rate hikes into 2023.

Tuesday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.1% last month after a 0.4% rise in October. The data was significantly weaker than expected; economists were looking for an increase of 0.3%.

The report said that annual inflation rose 7.1% last month. Economists were expecting to see a rise of 7.3%.

"This was the smallest 12-month increase since the period ending December 2021," the report said.

The gold market was holding above $1,800 an ounce ahead of the report and has added further gains in initial reaction. February gold futures last traded at $1,814.10 an ounce, up well more than 1% on the day.

Stripping out volatile energy and food prices, the report said that core CPI rose 0.2%, compared to October's increase of 0.3%. Economists were looking for a 0.3% rise.

For the year, annual core inflation rose 6.0%, the report said.

Gold is benefiting as the U.S. dollar drops to its lowest point since the start of the year in reaction to the inflation data. Economists note that the drop in consumer prices gives the Federal Reserve room to slow the pace of rate hikes into 2023.

The Federal Reserve is expected to raise interest rates by 50 basis points on Wednesday. Still, many analysts and economists are watching to see where the central bank sees rates peaking in 2023.

Many analysts note that the current economic environment is favorable for gold. They said that inflation, while off its highs, will remain well above pre-COVID levels for the foreseeable future as the Federal Reserve eases its aggressive rate hike stance.

Looking at the components of the report, housing costs were the biggest contributor to inflation last month. At the same time, food prices increased 0.5% and energy prices dropped 1.6% as gasoline prices declined.

The energy index increased 13.1% in the last 12 months, and the food index increased 10.6% annually.

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