Gold moved higher on Wednesday after the release of U.S. inflation data as the dollar slid. Hotter-than-expected US inflation fueled expectations that the Federal Reserve will maintain a path of aggressive interest rate hikes.

Spot gold rose 0.81% to $1,853.10 an ounce as of 4:02 p.m. NY Time, but is still tracking lower on a weekly basis. 

Inflation to Remain Hot for a While

U.S. central bank officials strengthened their case on Tuesday for the fastest round of interest rate hikes since at least the 1990s to fight inflation.

Fed policymakers are battling a surge in price pressures that has pushed inflation to a 40-year high as demand for labor and products in the U.S. economy outpaces limited supply, made worse by COVID-19 lockdowns in China and Russia’s war in Ukraine.

According to Labor Department data released Wednesday, the core consumer price index, which excludes food and energy, rose 0.6% from the previous month and 6.2% from April 2021, beating economists’ median forecasts.

The broader CPI rose 0.3% from the previous month and 8.3% on an annual basis, a slight cooling but still among the highest readings in decades. Gasoline prices eased off record highs in April, suggesting inflation has likely peaked. However, we can expect the Federal Reserve to keep hiking interest rates to cool demand, as inflation should remain hot for some time.

Gold Sentiments Might Be Close to Max Bearish

Helping gold to rise, the dollar index, which initially strengthened after the CPI data, fell slightly by around 0.3%.

Tai Wong, an independent metals trader in New York, said, “The Fed won’t get more hawkish with this report, but definitely won’t ease off either. But the sentiment (in gold) might be close to max bearish at the moment, which is why we could get a significant rebound”.