The Consumer Price Index increased 0.2 percent in October. What does it mean for the gold market?

The cost of consumer goods finally rose in October, the first time in three months. This is not good news for consumers, but all people who are afraid of deflation can breathe a sigh of relief. The cost of living increased mainly due to higher costs of medical care and rents. As a reminder, these two categories amount to about half of the inflation basket.

Over the last 12 months, the all items index increased 0.2 percent. The core index, which excludes the energy and food prices, rose 0.2 percent in October and 1.9 percent on an annual basis (the same increase as in September), quite close to the Fed’s 2-percent target.

Although the rise in the cost of living is clearly negative for consumers, it may be welcomed by the U.S. central bank. The increase in consumer prices after two months of declines can only strengthen the expectations of a Fed hike in December. If inflation starts picking up, the U.S. central bank will be feeling a lot more comfortable with its tight stance. Thus, the recent data on CPI is bad news for the gold market.

On the other hand, this week we witnessed some data potentially more favorable for the yellow metal. For example, business activity in the New York region declined for the fourth straight month in November, while the industrial production fell 0.2 percent in October.

Summing up, although U.S. industry still looks unconvincing, the Fed seems to be determined to hike interest rates. The core CPI has been quite impressive recently, so the U.S. central bank can hike interest rates whenever it wants. The rise in the total CPI in October might preclude the Fed from finding another excuse not to hike this year. Therefore, the price of gold should remain under downward pressure in the next few weeks.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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