(Bloomberg) — Gold pared gains fueled by cooling US inflation as traders assessed the Federal Reserve’s pace of interest-rate hikes.US inflation continued to slow in December, with the overall consumer price index falling 0.1% from the prior month. That’s in line with economists’ estimates. Excluding food and energy, the so-called core CPI rose 0.3% last month and was 5.7% higher than a year earlier, the slowest pace since December 2021. Cooling inflation may give the Fed room to slow the pace of its monetary tightening.The dollar and Treasury yields extended declines right after the print, but have since pared some of the losses. Bullion soared as much as 1.4% before giving up some gains.“The initial gold rally post CPI was quickly faded as investors reminded themselves that inflation needs to fall much further before the Fed can pause,” said Ed Moya, senior market analyst at Oanda. “The labor market is still hot and the cooler fuel pressures appear to be going away this month. Inflation needed to fall below expectations for gold to have a sustainable rally and that clearly did not happen.”Most Fed officials have tried to push back on those expectations, warning that rates will need to go higher to control inflation. Still, Fed Bank of Boston President Susan Collins and Philadelphia’s Patrick Harker both advocated moving to a quarter-point hike at the next meeting.Swap markets are now close to pricing in a smaller increase following a series of much larger hikes by the central bank. Higher long-term interest rates tend to harm non-yielding assets like gold.Spot gold rose 0.7% to $1,889.46 an ounce as of 10:36 a.m. in New York, after earlier exceeding $1,900. The Bloomberg Dollar Spot Index fell 0.5%. Silver jumped 1.4%, while platinum declined.©2023 Bloomberg L.P.