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Gold prices push above $1,900 as annual U.S. CPI rises 6.5% in December, in line with expectations

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(Kitco News) - Gold prices have pushed above $1,900 an ounce and are trading near session highs as U.S. consumer prices cool in December, in line with expectations.

Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index fell 0.1% last month after a 0.1% rise in November.

At the same time, annual inflation rose 6.5% last month, down from November's increase of 7.1%. The data was in line with consensus forecasts.

Core CPI, which strips out volatile food and energy prices, rose 0.3% last month, following a 0.2% rise in November. Core inflation also rose in line with economist estimates. For the year, core inflation rose 5.7%, down compared to November's increase of 6.0%.

Some analysts expected to see a "buy the rumor, sell the news" move in gold as investors were starting to price in weaker-than-expected inflation readings. February gold futures last traded at $1,902.30 an ounce, up more than 1% on the day.

According to analysts, the gold market is seeing new momentum as investors shift their U.S. monetary policy expectations. According to analysts, investors see cooling inflation as a sign that next month Federal Reserve will continue to slow the pace of its aggressive rate hikes.

The CME’s FedWatch Tool shows markets see a 94.3% chance that the U.S. central bank only raises interest rates by 25 basis points in February.

According to the report, gasoline prices were the biggest contributor to the cooling inflation numbers. The Gasoline Index dropped 9.4% in December, compared to a 2% decline in November.

"The index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes," the report said.

The Energy Index fell 4.5% last month.

Looking at food prices, the report said that the Food Index rose 0.3% last month.

Although inflation appears to be cooling at a fast face, some analysts note that it still remains elevated. Paul Ashworth, chief North America economist at Capital Economics, said that although inflation is falling its not enough for the Federal Reserve to change directions on monetary policy.

“Overall, this latest report adds more weight to our view that CPI inflation will fall more rapidly than the Fed expects this year. But the Fed isn’t going to stop raising interest rates until it sees accompanying evidence of an easing in labour market conditions and wage growth. It will be a couple more months before that evidence is also irrefutable,” he said in a note.

By Neils Christensen

For Kitco News

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