Gold Weakens As U.S. Inflation Beats Expectations In August
(Kitco News) - Gold prices fell on Thursday following better-than-expected U.S. inflation data from August.
The U.S. Consumer Price Index rose 0.4% in August, after edging up just 0.1% in July, the U.S. Labor Department said on Thursday. Consensus forecasts were calling for a rise of 0.3%.
The pickup was mainly led by increased gasoline and shelter costs, both rising 6.3% and 0.5%, respectively, the report said.
Annualized inflation also beat forecasts by coming in at 1.9% instead of the expected 1.8%.
In an immediate reaction to the data, gold prices plunged, with December Comex gold trading at $1,322.10, down 0.47% on the day. Thursday's New York trading session began with gold modestly lower, as the yellow metal was still going through a corrective pullback after reaching a 12-month high last week.
Monthly core inflation, which strips out volatile food and energy costs, rose 0.2% as expected, following a 0.1% advance in July. Annualized core inflation was at 1.7% versus the estimated 1.6%.
While not the Federal Reserve’s preferred inflation measure, core price pressures still remain below the central bank’s target of 2%.
Inflation pace has been a concern for investors this summer, with some key Fed officials dismissing prior months’ weak inflation as “transitory.”
But, analysts view low inflation as an obstacle to additional Fed rate hikes in the near future. “Notions are growing that low inflation in the U.S. and the Euro zone will keep the Federal Reserve and European Central Bank from tightening their monetary policies as soon as they would like,” said Jim Wyckoff, Kitco’s senior analyst.
Yet, Royce Mendes, an economist at CIBC Capital Markets, pointed out after the data release that the Fed will likely to focus on the monthly core inflation data from August, which was positive enough to keep the “December rate hike on the table,” he said. “The above consensus headline and solid core prints have been positive for the dollar and negative for fixed income.”
Fed rate hike expectations after inflation figures were released stood at zero for September and at 50.9% for December, according to CME’s Fed Watch Tool.