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LONDON: Gold prices reversed course to trade up nearly 1% on Wednesday after data showing U.S. consumer prices increased more than expected in October bolstered the metal’s appeal as a hedge against inflation.

Spot gold was up 0.8% to $1,846.51 per ounce at 8:54 a.m. ET (1354 GMT), although the metal initially fell as much as 0.5% in a knee-jerk reaction to the data.

U.S. gold futures rose 1.1% to $1,851.40.

“Once again we have hot inflationary data,” said David Meger, director of metals trading at High Ridge Futures. “With gold being the quintessential hedge against inflation, we believe inflation is the underlying positive environment that will foster the gold market rally in the weeks and months ahead.”

“This environment is a double-edged sword, because as the inflationary data continues to come out hotter than expected, the concern will be whether the Federal Reserve reduces liquidity faster than anticipated, which led to the knee-jerk move to the downside.”

U.S. consumer prices increased more than expected in October as the cost of gasoline and food surged, leading to the biggest annual gain since 1990.

Prices of bullion have hovered around two-month highs over the past few sessions after assurances from key central banks last week that interest rates would remain low for the time being, with the Federal Reserve sticking to its view that inflation is “transitory.”

The precious metal benefits from low rates as they reduce the opportunity cost of holding gold, which yields no interest.

“There appears to be a growing perception in the markets that, for all the warnings around rate hikes, central banks are not as keen to follow through,” said Craig Erlam, senior market analyst at OANDA.

Elsewhere, spot silver rose 1% to $24.51 per ounce, platinum jumped 1.7% to $1,076.64, and palladium gained 1.1% at $2,043.56.

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