Gold drops on lackluster U.S. inflation data, Fed uncertainty

Investing.com - Gold prices dropped on Tuesday after less-than-stellar U.S. inflation rates hit the wire, which clouded already murky expectations on whether or not the Federal Reserve will decide to taper its USD85 billion in monthly asset purchases at a policy meeting ending Wednesday.

Bond purchases seek to boost recovery by pushing down interest rates, weakening the dollar in the process and making gold an attractive hedge.

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,230.70 during U.S. afternoon hours, down 1.10%.

Gold prices hit a session low of USD1,227.10 a troy ounce and high of USD1,247.50 a troy ounce.

Gold futures were likely to find support at USD1,220.10 a troy ounce, Friday's low, and resistance at USD1,251.40, Monday's high.

The February contract settled up 0.79% at USD1,244.40 a troy ounce on Monday.

The Department of Labor reported earlier that the U.S. consumer price index came in flat in November after falling 0.1% in October. Analysts were calling for a 0.1% uptick.

The annual rate of inflation rose 1.2% in November, just shy of expectations for 1.3% reading but still up from a four-year low of 1.0% in October.

U.S. core inflation, stripped of volatile food and energy items, rose 0.2% in November from October, beating expectations for a 0.1% gain, while the year-on-year rate for November rose 1.7%, which met consensus forecasts.

Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. Monetary authorities usually try to aim for 2% core inflation or less.

With inflation rates refusing to serve as a clearly visible weather vane pointing to the direction of monetary policy, investors avoided the precious metal until the Fed releases is policy statement on Wednesday.

Elsewhere on the Comex, silver for March delivery was down 1.31% at USD19.837 a troy ounce, while copper for March delivery was down 0.28% and trading at USD3.320 a pound.

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