Gold slumps after U.S. inflation comes in higher than expected

CPI data showed prices grew 0.8% from a month earlier, four times the median analyst estimate and the highest since 2009, intensifying the already-heated debate about how long inflationary pressures will last. Treasury yields and the greenback gained on the news, while U.S. equities declined. Rising yields reduce non-interest-bearing bullion's appeal, and a stronger dollar hurts the precious metal as it's priced in the greenback.

Markets were already concerned about rising inflation amid surging commodity prices, which sparked a sell-off in global equities on Tuesday. Higher prices could prompt the Federal Reserve to raise rates earlier than expected, hurting certain stocks as well as gold.

"Gold is approximately 50% correlated with Treasuries, so it gets hit as interest rates rise. On top of that, the dollar is rallying on higher U.S. rates," said Jay Hatfield, president of Infrastructure Capital Management. "The stock market dipping on the inflation data showed that investors fear that the Fed may need to tighten soon."

Policymakers at the central bank have been unified in supporting the case for low interest rates. "The outlook is bright, but risks remain, and we are far from our goals," Governor Lael Brainard told a virtual event Tuesday. Cleveland Fed President Loretta Mester and James Bullard of St. Louis voiced similarly dovish views.

The CPI data comes amid concerns the economic recovery may not be proceeding as hoped. Gold rose to the highest in three months earlier this week after a report Friday showed a surprise slowdown in U.S. job growth, supporting the case for continued economic stimulus.

Spot gold retreated as much as 0.9% to $1,820.86 an ounce after the news, before trading at $1,823.49 at 11:44 a.m. in New York. Prices hit $1,845.51 on Monday, the highest since Feb. 11. Silver, platinum and palladium fell. The Bloomberg Dollar Spot Index strengthened 0.6% though remained near the lowest since early January.