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Gold prices jump 1% as U.S. CPI rises 7.7% for the year in October

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(Kitco News) - Gold prices are on the move, jumping 1% immediately following weaker-than-expected inflation numbers.

Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.4% last month after a 0.4% rise in September. Economists were looking for an increase of 0.6%.

For the year, inflation pressures rose 7.7%, significantly below expectations for a 7.9% rise. In September, annual inflation was 8.2%.

"This was the smallest 12-month increase since the period ending January 2022," the report said.

The gold market is seeing a jolt of new momentum as the weak inflation data is shifting expectations for U.S. monetary policy. December gold futures last traded at $1,730.50 an ounce, up nearly 1% on the day.

Core inflation, which strips out food and energy prices, also showed signs of cooling, rising 0.3%, down from the 0.6% rise in September. Economists were expecting to see a 0.5% rise.

For the year, core inflation is up 6.3%, down from September's annual increase of 6.6%.

Although inflation appears to be cooling, the report noted that consumers are still seeing rising food and energy costs. The Energy index rose 1.8% last month, with both gasoline and electricity prices rising; however, natural gas prices dropped.

At the same time, the food index increased 0.6% last month.

The report said that energy prices increased 17.6% for the year in October and food prices rose 10.9%.

"All of these increases were smaller than for the period ending September," the report said.

Although inflation remains persistently high, the drop is having a significant impact on interest rate expectations. Economists note that lower inflation will give the Federal Reserve room to slow the pace of its aggressive rate hikes.

The CME FedWatch Tool shows markets now see a 73.5% chance the U.S. central bank will raise interest rates by 50 basis points next month. Ahead of the inflation, data markets were pricing in a 50/50 chance of a more aggressive move.

Paul Ashworth, Chief North America Economist, said that while the Federal Reserve will continue to raise interest rates into the new year, the latest inflation numbers could indicate that the tightening cycle is closer to ending.

"We expect this to mark the start of a much longer disinflationary trend that we think will convince the Fed to halt its tightening cycle early next year, with the policy rate peaking at 4.50% to 4.75%, and to begin cutting rates again before the end of 2023," he said.

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