Weaker inflation sustains appetite for gold at home and precious metals

Unexpected Breakthrough in CPI Data

On Thursday, the U.S. Bureau of Labor Statistics surprised markets by announcing that the December Consumer Price Index (CPI) increased by just 2.7% year-over-year – significantly below analysts’ forecast of 3.1%. Core inflation (excluding food and energy) fell to 2.6%, reaching the lowest level since March 2021.

This data sent a strong signal to Fed members advocating for a more accommodative monetary policy. The market immediately priced in a scenario with two rate cuts in 2026, while interest rate futures are pricing in a total reduction of about 62 basis points.

Gold reacts with a rebound to weaker inflation

Almost immediately after the CPI release, precious metals markets went on the offensive. Gold, which had previously been declining, rebounded to its highest levels in two months. February gold futures ultimately closed with a loss of $8.30 at $4,334.08 per ounce, while March silver futures fell by $1.516 to $65.385.

Although the session ended with declines, the initial rebound showed that both strategic investors and speculators see potential in gold and the entire precious metals category in an environment of increasing chances of easing.

Dollar weakens, safe assets strengthen

The dollar index decreased during the day, trading around 98.47 points. A weaker currency traditionally supports prices of commodities denominated in dollars. At the same time, the yield on 10-year U.S. Treasury bonds fell to 4.116% following the CPI data announcement.

Tensions between the U.S. and Venezuela further fueled the shift of capital toward safe assets, supporting gold and silver. The energy market also reacted – oil is trading around $56.50 per barrel.

Outlook: Goldman Sachs remains bullish on gold

Goldman Sachs’ research division maintains a constructive outlook on precious metals. The institute forecasts the price of gold reaching $4,900 per ounce by December 2026 in the baseline scenario – a 14% increase from current levels.

Key support will come from central banks, which Goldman estimates will buy an average of 70 tons of gold per month, driven by geopolitical concerns and the desire to diversify reserves. Institutional demand for gold should therefore remain strong next year.

Why the Fed may act cautiously

Fed Board member Christopher Waller emphasized on Wednesday that policymakers are not rushing to aggressively loosen policy. With inflation still above the Fed’s targets, rate reductions may be gradual. Based on current levels, the Fed estimates the neutral rate to be 50-100 basis points below the current policy rate.

CME FedWatch indicates only a 28.8% probability of a rate cut in January, suggesting that the first move may come later.

Labor market sends mixed signals

The number of new unemployment claims fell to 224,000 (below the forecast of 225,000), but continuing claims rose to 1.897 million. The four-week moving average slightly increased to 217.5 thousand. Data suggest the labor market is in a phase of stabilization, with no clear breakthroughs in either direction.

This ambiguity in the labor market combined with weakening inflation creates a scenario favorable to gold and the home category – investors are seeking protection in case of an economic slowdown.