On Wednesday, gold prices reached the June high, supported by US CPI data.
Consumer prices in the United States rose by 6.2% year-on-year in October - the biggest annual gain since November 1990. Economists had forecast an increase of 5.9%.
On a monthly basis, the CPI gained 0.9% in October. The index was expected to get higher by 0.6%.
Consumer goods prices rose sharply, with food prices jumping by 5.3% year-over-year through October. Gasoline prices surged by 6.1% - the largest upsurge since March.
The rise in inflation was supported by a significant increase in wages and supply chain disruptions, commented Juan Carlos Artigas, global head of research at the World Gold Council.
He noted that the current situation suggests higher inflation could persist longer than anticipated by the Fed. According to Artigas, it should support investment demand for gold as an inflation hedge.
The latest CPI data, described by CIBC's senior economist Katherine Judge as "scorching hot", immediately pushed the safe-haven asset up towards the 5-month high.
On Wednesday, gold prices surpassed the key level of $1,835 and reached the highest point since June 16. The asset closed at $1,848.30 per ounce, up 1% or $17.50 compared to Tuesday.
The precious metal climbed for the fifth consecutive trading day - the longest uptrend since early July. Its upward movement was unaffected by the rising dollar.
On Wednesday, USDX gained 0.9%, reaching the yearly high of 94.781. The upsurge was triggered by renewed hopes of an earlier interest rate hike amid high inflation, Ava Trade's analyst Naeem Aslam said.
"The dollar index is up as traders believe that the Fed is behind the curve and they need to do something to control the pace of inflation," Aslam noted.
At this point, the Fed continues its dovish course. This week, Jerome Powell, the chairman of the Federal Reserve, hinted that the interest rate could only be raised in late 2022.
The gold market is seeing new bullish momentum due to concerns that the Fed is lagging behind the inflation curve amid the highest price increase in 30 years.
"There is a real fear among investors that the Fed will lose control," said Bob Haberkorn, senior commodities broker with RJO Futures.
Following the release of CPI data, the 10-year US note yield fell to a record low of 1.235%, which also boosted gold.
Yesterday, the asset also found support in the decline of US stock market indexes. Demand for risk assets slumped due to rising prices. "As for the equity markets, higher inflation isn't the best news that they need ahead of their holiday," Naeem Aslam commented.
Inflation and gold price outlook
Andrew Hunter, economist at Capital Economics, said further shortages caused by supply chain issues would affect consumer prices, keeping inflation at a record high level.
The Fed considers the current period of high inflation as "transitory". Its dovish position on interest rates could boost gold as a safe-haven asset, prolonging the current rally.
"If gold is going to rally, it is because of this new inflation fear," Bob Haberkorn said. He added that it was only the start of an upward movement, with the next target for gold being between $1,900 and $1,920.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that he also expects gold prices to reach $1,920.
"This was a significant breakout for gold, and there is not much between here and $1,900" he said. "The fact that gold can break out when the U.S. dollar is rallying means that it has the momentum to move higher," Cieszynski added.
The asset has room for upward movement, but there is some initial resistance at the level of $1,870 per ounce, some analysts noted.
