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Gold price sees $20 swings as inflation accelerates slightly in September

Kitco News

(Kitco News) The U.S. inflation data accelerated slightly more than expected in September, with the U.S. Consumer Price Index rising 0.4% after August's advance of 0.3%, the U.S. Labor Department said.

Consensus forecasts were calling for a rise of 0.3%.

Annualized inflation was at 5.4% versus the projected 5.3%. September's increase matched the largest annual price gain since 2008. This comes after August's 5.3% advance.

Monthly core inflation, which strips out volatile food and energy costs, came in as expected, up 0.2% in September, following a 0.1% advance in August. Annualized core inflation also met expectations, coming in at 4% after registering the same advance during the previous month. 

Analysts are closely monitoring inflation data, with many starting to anticipate more persistent inflation than previously thought.

In an immediate reaction to the data, gold prices plunged from daily highs and saw double-digit losses of $18. December Comex gold futures were seen trading at $1,760.10, up 0.05% on the day. The move down in gold coincided with the U.S. dollar recovering following overnight losses.

However, the gold drop proved temporary, with prices rebounding as markets digested the data further. Within the hour, December gold rose back to daily highs and last traded at $1,780.50, up 1.21% on the day.

"Today's slightly warmer CPI data arguably lands in the camp of the U.S. monetary policy hawks, who want to see the Federal Reserve tighten its monetary policy sooner rather than later," said Kitco's senior analyst Jim Wyckoff. "The Federal Reserve will closely scrutinize today's CPI data as it mulls the timing of tapering its monthly government bond purchases (quantitative easing)."

According to the report, the most significant price pressures in September were due to food and shelter costs, including energy prices. "The indexes for food and shelter together contributed more than half of the monthly all items seasonally adjusted increase," the release stated.

The food index was up 0.9%, the energy index rose 1.3%, and the gasoline index climbed 1.2%. Over the last year, the energy index advanced 24.8%, and the food index increased 4.6%.

The latest inflation number is another sign that higher price pressures are here to stay for longer, said CIBC Capital Markets economist Katherine Judge.

"Given the persistence of supply chain issues in some sectors as well as the pass through of higher energy costs to various goods, it's likely that inflation remains elevated for longer than previously expected," Judge said.

All eyes are now on the Federal Reserve's September meeting minutes, which will be released on Wednesday afternoon. Markets will be looking for the central bank's take on employment and inflation goals and what it all means for tapering.

Live 24 hours gold chart [Kitco Inc.]

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