Higher than expected consumer inflation numbers caused the dollar to leap this morning, pushing gold prices lower. The Consumer Price Index (CPI) for August rose 0.2%, while core CPI rose 0.3%. The core CPI year-over-year reading of 2.3% was the trigger for this morning's market moves, regardless of the fact that the Fed likes to use the lower Personal Consumption Expenditures index to track inflation.
The soaring dollar pushed gold prices down as much as $8 an ounce immediately after the CPI report. At 10am in New York, gold was trading at $1,308.90/oz. Spot gold was down $5.90, while gold futures were down $15.00. Silver was trading at $18.75 an ounce. Spot silver was 21 cents lower, while silver futures had shed 50 cents.
The robust inflation report led stocks to open lower on Wall St, from fears that the Fed will be more likely to increase interest rates next week, or perhaps in December. That skittishness is being transferred to the Fed funds market. The CME FedWatch tool had odds of a September rate hike at 12% at yesterday's close, but was up to 15% this morning after the CPI report was released. The odds for December also rose, from 46.2% yesterday to 52.9% this morning.
The U.S. Bureau of Labor Statistics (BLS) reported that consumer inflation rose in August by 0.2%, from a 0% reading in July. Compared to August 2015, retail prices were 1.1% higher. Core CPI, which removes volatile food and energy prices, was up 0.3% for the month, and 2.3% year-on-year. Although the uptick in inflation measures is providing some momentary downward pressure on gold due to the possible interest-rate implications, a failure to raise rates by the Fed next week could well see a strong corrective bounce back to previous levels.
In other news, crude oil prices sank to multi-week lows as the global supply glut seems poised to grow. In addition to Iran finally re-entering the international oil market after years of sanctions, other major producers like Nigeria and Libya are also returning to the global oil trade after facing production disruptions. This will only add to the build in crude stockpiles. West Texas Intermediate (WTI) sank 2.4% to a five-week low while Brent crude slipped to about $45 per barrel. Reuters notes that both crude oil contracts have lost about 10% this week.
The rise in volatility in the markets lately looks to continue on Friday as the "Quadruple Witching" of options expiry occurs today. As far as major economic news being release is concerned, the European Union will be holding a summit at 2pm EST this afternoon to discuss how to best deal with the fallout from the Brexit vote. (Britain will conspicuously not be represented at the summit.)
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