Gold prices drop sharply as U.S. CPI rises 0.4% in September

Gold prices have dropped sharply into negative territory as U.S. consumer prices rose more than expected in September, raising prospects that the Federal Reserve will maintain its aggressive monetary policy stance through the rest of the year.

Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.4% last month after a 0.1% rise in August. Economists were looking for an increase of 0.2%.

The report said that annual inflation rose 8.2% last month. Economists were expecting to see a rise of 8.1%.

Core CPI, which strips out volatile food and energy prices, rose sharply by 0.6% last month. According to consensus estimates, economists were looking for a 0.4% rise.

For the year, core inflation rose 6.6%.

The gold market has been unable to withstand solid momentum in the U.S. dollar and rising bond yields. December gold futures last traded at $1,666 an ounce, down 0.69% on the day.

The report noted that the inflation threat is growing and flowing through to the general economy as food, shelter and medical costs outpace falling energy prices. The report said gasoline prices fell 4.9% last month, with the overall energy index dropping 2.1%.

The hotter-than-expected inflation data came one day after the minutes from the Federal Reserve’s September monetary policy meeting showed that the central bank is committed to cooling down consumer prices even as the economy weakens.

In reaction to the CPI numbers, markets have fully priced in a 75-basis point move next month and see a small possibility of a full 1% move. Expectations for a 75-basis point hike also jumped sharply for December.

Analysts have said that rising interest rates, supporting the U.S. dollar at a 20-year high will continue to be strong headwinds for gold prices.

By Neils Christensen

For Kitco News

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