Gold Prices Drop Sharply Following Strong Rise In US CPI
(Kitco News)- Goldprices have lost some of their lusteras inflation picked up more thanexpected in the first month of the new year.
Wednesday,the U.S. Labor Department said its U.S. Consumer Price Index rose 0.5% inJanuary, after increasing 0.3% in December. The increase was stronger thanexpected as consensus forecasts were calling for a 0.2% increase.
The report said that annual inflation rose 2.1%.
Monthlycore inflation, which strips out volatile food and energy costs, rose 0.3%,following a 0.4% increase in December. Economists were expecting to see a 0.2%rise in price pressures.
For the year, core inflation increased 1.8%. While CPI isnot the Federal Reserves preferred inflation measures, price pressures are inchingcloser to its target of 2%.
Goldprices were in positive territory ahead of the report but have given up itsgains in the initial reaction. April gold futures last traded at $1,3,325, down0.41% on the day.
According to some economists, the stronger than expectedinflation data has helped to solidify expectations that the Federal Reservewill raise interest rates in March. Some economists says that the data raiseexpectations that the central bank will raise rates four times this year.
"Underlying price pressures are picking up, whichthe Fed will be unable to ignore," said Michael Pearce, senior U.S. economist at Capital Economics. "Overall we think the increase in core CPIinflation in January is a sign of things to come over the rest of the year."
Gold has dropped sharply as the U.S. dollar has pushedhigher along with 10-year bond yields, which continues to trend at its highestlevel since early 2014.
Avery Shenfled, senior economist at CIBC World Markets, saidthat that the stronger-than-expected inflation data will leave "littlelove" for equity markets as bonds continue to selloff.
Looking at the components of the index, the report said that there were broad-based incresaes; in particular, the energy index increased 3% last month as higher gasoline prices ofset decines in other engery products.
By Neils ChristensenFor Kitco News
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