Gold price volatile, drops and then rallies sharply as U.S. CPI rises 6.2% for the year
(Kitco News) - The gold market is seeing bullish volatility as consumer price pressures were significantly hotter than expected last month.
Wednesday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.9% in October, after a 0.4% rise in September. The data beat consensus forecasts as economists were forecasting a 0.6% rise.
For the year, the report said that headline inflation rose 6.2%. The report added that this is the largest yearly increase in headline inflation since November 1990.
"The monthly all items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors," the report said.
The energy index increased 4.8% last month, with the gasoline index jumping 6.1%.
Meanwhile, core CPI, which strips out food and energy costs, increased 0.6% in October, up from a 0.2% increase in September. Economists were expecting to see a rise of 0.4%.
The report said that annual core CPI rose 4.6%. It added that this is the largest increase since August 1991.
In an initial reaction to the inflation data, the gold price dropped; However, the market has recovered sharply, jumping through a critical resistance point. December gold futures last traded at $1,841.80 an ounce, up 0.60% on the day.
Interesting move in #gold following US CPI.— John Reade (@JReade_WGC) November 10, 2021
The first reaction to 'inflation coming in hot' as many described it was for gold to dip, anticipating higher real yields.
But then gold moved much higher - last around $1838/oz. pic.twitter.com/LT0uakeNLX
Katherine Judge, senior economist at CIBC, described the latest CPI data as "scorching hot." She added that this could put the Fed in a difficult position as it has said now is not the time to raise interest rates.
"This print will leave more doubts in the Fed's mind about how long they can let this inflation run. Although we expect some calming on the supply chain front by mid-2022, labor market tightening by that time will keep inflation sustainably above target," she said.
With gold prices breaking through key resistance at $1,835, Ole Hansen, head of commodity strategy at Saxo Bank, said it has room to run a minimum of $50 to the upside.
Andrew Hunter, senior U.S. economist at Capital Economics, said that while supply shortages continue to impact consumer prices, there are rising cyclical pressures that will keep inflation unusually high.
"The biggest concern for the Fed should be signs that longer-lasting cyclical inflation pressures are continuing to build rapidly, with CPI rent of primary residence and owners' equivalent rent both posting strong gains of 0.4% m/m," he said. "The bottom line is that, while it remains difficult to predict how far or for how long the various "transitory" factors will boost inflation, there is increasing evidence that inflationary pressures are broadening out, underlining that inflation will remain elevated for much longer than Fed officials expect."