Gold jumped up on Wednesday, rebounding from losses made in the wake of stronger than expected U.S. inflation data, as the dollar surrendered gains and stock markets swung higher.
The dollar initially rose after Wednesday's inflation report showed U.S. consumer prices rose more than expected in January, as traders bet that rising price pressures could spur the Federal Reserve to boost interest rates faster than previously forecast.
However, softer than forecast retail sales data and an immediate pullback in equities markets sparked concern that the Fed would struggle to raise rates quickly enough to offset inflation pressures.
Spot gold was up 1.4 percent at $1,349.94 an ounce at 1:05 p.m. EST. U.S. gold futures for April delivery were up 1.68 percent at $1,352.70.
"That inflation scare could be something that really plays into gold's more bullish sentiment -- if the Fed stays behind the curve, inflation could become problematic and gold could be a good hedge against that," said Societe Generale analyst Robin Bhar.
"The monetary authorities want stability," he said. "It could delay monetary tightening if this correction turns into a bear trend in stock markets. That would make them cautious, and maybe that's what the market's looking at."
U.S. stocks fell on Wednesday in the immediate wake of the inflation report, which fanned fears of faster interest rate increases, and after U.S. retail sales posted their biggest decline in 11 months.
"Given the weak retail sales report alongside (the inflation data), the markets are probably going to talk about stagflation, where you are getting stronger inflation but not really getting a stronger consumer," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "Those two in tandem might be leading to this flattener in Treasuries, though retail sales are pretty volatile."
Stock markets, which have scaled a series of record peaks over recent months, slipped sharply last week, fuelling fears of a deeper sell-off.
Gold also slid as investors fleeing falling stock markets opted for the dollar as an alternative —but the metal has since recovered as the dollar surrendered gains.
The world's largest gold-backed exchange-traded fund, SPDR Gold Shares, reported an inflow of nearly 3 tons on Tuesday after the biggest weekly drop in holdings since July 30.
Among other precious metals, silver was up 1.7 percent at $16.83 an ounce, palladium gained 1.84 percent to $1,003.10 and platinum was up 2.3 percent at $996.10.
The platinum market is set for another surplus this year after recording oversupply of 110,000 ounces in 2017, Johnson Matthey said in a report on Wednesday, though its sister metal palladium is tipped for another deficit.