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Gold Prices Down Following Rise In U.S. CPI

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(Kitco News) - Gold prices have fallen from their four-month highs following stronger-than-expected U.S. inflation data.

Friday, the U.S. Consumer Price Index rose 0.1% in December, after increasing 0.4% in November, the U.S. Labor Department said. According to consensus forecasts, economists were expecting to see an increase of 0.1%.

However, monthly core inflation, which strips out volatile food and energy costs, rose 0.3%, following a 0.1% advance in November. Economists were expecting to see a 0.2% rise in price pressures.

As of 8:32 a.m. EST, Comex February gold was up $5.40 to $1,327.90 an ounce an ounce. Two minutes prior to the report, the metal was up $9.60 to $1,332.10 an ounce.

Annually, the report said, headline inflation rose 2.1%, slightly down from November’s reading of 2.2%.

Despite the stronger than expected monthly core increase, annual inflation remains relatively muted, increasing 1.8% in December, up from 1.7% in November.

“The 12-month change has now been either 1.7 or 1.8 percent for eight consecutive months,” the report said.

Core inflation, while not the Federal Reserve’s preferred inflation measure is still well below the central bank’s target of 2%.  

Looking at some of the components, the report said that food index increased 1.6% in 2017, while energy index increased 6.9%.

Avery Shenfeld, senior economist at CIBC World Markets, said that the U.S. dollar could see some momentum Friday following CPI data. He added that while the strong rise in core inflation is not a trend, it appears price pressures are heading in the right direction.

Inflation has been in the spotlight lately as the Federal Reserve has shown ongoing concern for weak inflation pressures. Some central bank committee members have said that interest rates should be put on hold until inflation picks up.

According to some economists, the latest rise in core inflation provides some incentive to raise interest rates.

"The 0.3% m/m gain in core consumer prices in December will reinforce expectations of a Fed rate hike in March and supports our view that the Fed will ultimately increase interest rates by a more aggressive 100bp cumulatively this year," said Paul Ashworth, chief U.S. economist at Capital Economics.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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