By Barani Krishnan

Investing.com – Gold longs win again, even when U.S. inflation isn’t exactly scaring the Biden administration.

Gold futures’ most active contract on New York’s Comex, , settled up $8.80, or 0.5%, at $1,827.30 an ounce on Wednesday. Comex gold gained 2.1% on Wednesday, making it the fourth straight day of rising.

After the U.S. December reading was in line with expectations, it rose by 7% for the year to match the high rate of inflation since October. Only 0.5% was more than expected, which is a slight increase from the 0.4% forecast.

“Today’s report — which shows a meaningful reduction in headline inflation over last month, with gas prices and food prices falling — demonstrates that we are making progress in slowing the rate of price increases,” the White House said, commenting on the CPI reading, It did add that the current rate of inflation “underscores that we still have more work to do, with price increases still too high and squeezing family budgets”.

The December CPI did not provide any sticker shock for markets so the 10-year U.S. Treasury Note and the Dollar both declined, which allowed gold to rise.

“Gold has been comfortably above the $1800 level after the rally stalled at the 1.80% level,” said Ed Moya, analyst at online trading platform OANDA. “If dollar weakness accelerates here, gold could make a run towards the $1,840 level.”

“Gold seems like it is in a good place as Treasury yields won’t be rallying much higher until financial markets have balance sheet runoff certainty and that won’t happen until at least a couple more Fed meetings.”

Federal Reserve monitors closely the CPI Index in order to decide when and how much interest rate increases will be made during a pandemic.

Following the outbreak in March 2020 of the coronavirus pandemic, the Fed cut interest rates almost to zero. The Fed has kept them between zero-0.25% for the last 20 months. Central bank indicated that they will increase rates up to three times in 2019, with their first rise likely occurring between March and June.

Due to the Covid-19 crisis-related disruptions, U.S. economic growth shrank 3.5% in 2020. According to the Fed, 2021 will see a 5.5% increase and 2022, 4%. The central bank’s problem though is inflation, running at four-decade highs as prices of almost everything have soared from the lows of the pandemic due to higher wage demands and supply chain disruptions.

The gold is viewed as an inflation hedge. It is holding steady at $1,800 since 2022. As the U.S. Treasury yields rose in anticipation of U.S. rates hikes, the yellow metal fell short on its hedge mission many times last year.

Gold is almost always affected by news of rate increases. This was evident last year when it fell 3.6% to close 2021, its first annual decline in three years. Its sharpest slump since 2015!

But analysts think that if the U.S. inflation theme remains strong through 2022, then gold could even retrace 2020’s record highs above $2,100 — a peak which, incidentally, came on the back of worries about price pressures as the United States began spending trillions of dollars on pandemic relief.