• Gold rallies to 2 1/2-month highs at $1,750 as the US Dollar tumbles.
  • US CPI eased beyond expectations in October.
  • Inflation data boosts hopes of a softer Fed rate hike in December.

Gold futures have shrugged off the soft tone seen earlier today to rally $40 higher and reach the mid-range of the $1,700s. The precious metal has been boosted by the broad-based US Dollar weakness following the release of US inflation data.

US Dollar dives after softer-than-expected CPI data

Consumer inflation rose at a slower-than-expected pace in the US, which has set the scene for the US Federal Reserve to ease its aggressive monetary policy path. This has spurred risk appetite, hammering the US Dollar and Treasury bonds and pushing precious metals higher. US CPI increased by 0.4% in October, unchanged from the previous month, against market expectations of a 0.6% reading, according to data from the US Bureau of Labor Statistics. Year-on-year, the CPI cooled down to a 7.7% rate, beyond the consensus of 8%, and after an 8.2% increase in September.

The core CPI, the Federal Reserve’s preferred gauge for inflationary trends, has eased to 0.3% in October, from 0.6% in September, against expectations of a 0.5% increase. Year on year, the core CPI has retreated to 6.3% from 6.6% in September.

Furthermore, US weekly jobless claims increased above expectations in the week of November 4; 225,000 new claims against the 220,000 expected, from 218,00 in the previous month. This adds to evidence that labor market conditions are starting to loosen.

The US Dollar Index, which had appreciated more than 16% so far this year, buoyed by the Federal Reserve’s aggressive monetary tightening has retreated about 2.2% after the data. The benchmark US 10-yeat Treasury bonds have dropped 30 basis points to 3.83%.