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Gold Jumps Following Disappointing Inflation Data

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(Kitco News) - Gold prices rose on Friday following data that showed weaker-than-expected inflation in the U.S.

The U.S. Consumer Price Index rose 0.1% in July, following an unchanged pace in June. Consensus forecasts were calling for a rise of 0.2%. Annualized inflation was at 1.7% last month.

Gold prices hit a two-month high in early U.S. trading on Friday prior to the release. In an immediate reaction to the data, prices jumped, with December Comex gold last seen at $1,296.40, up 0.48% on the day.

Core inflation, which strips out volatile food and energy costs, rose 0.1% in July, following a 0.1% rise in June. Economists were expecting to see a 0.2% rise last month.

Annualized core inflation came in as expected at 1.7%. While not the Federal Reserve’s preferred inflation measure, price pressures are well below the central bank’s target of 2%.

Inflation has been a hot topic for investors this summer, with Fed Chair Janet Yellen dismissing weak inflation pressures as “transitory” last month. Yellen specified that “some special factors,” such as prices for mobile phone plans and prescription drugs were putting additional pressure on inflation.

Economists view low inflation as an obstacle to additional Fed rate hikes in the near future.

“Inflation has been the missing in action trooper for US interest rate hikes, and July data didn't change that picture. Inflation missed a bit to the low side of our forecast and consensus,” chief economist of CIBC Capital Markets Avery Shenfeld wrote in a note.

“We're going to need a few 0.2% monthly gains in core prices to stay on track for our projected Fed hike in December. The soft monthly numbers (helped by a drop in autos) should be supportive for fixed income and negative for the US$,” he added.

Following the release of the inflation data, Fed rate hike expectations for September were at zero and for December at 35.8%, according to CME’s Fed Watch Tool.

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