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CPI in October 2017 and Gold

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On Wednesday, a report on U.S. consumer inflation was released. What does it imply for the gold market?

As wepredicted last month, the monthly rate of inflation slowed down in October after soaring in September due to disruptions caused by hurricanes.Consumer prices increased 0.1 percent . The move was driven mainly by higher housing costs (which jumped 0.3 percent). The core index, which excludes food and energy, rose 0.2 percent. These changes were generally in line with expectations.

On an annual basis, the overallCPI rose 2 percent, while the core CPI increased 1.8 percent, slightly better than in September and slightly better than expected. Therefore, the core index moved slowly in the direction toward the Feds 2-percent goal, as one can see in the chart below.

Chart 1: CPI (blue line) and core CPI (red line) year-over-year from October 2012 to October 2017.

CPI and Core CPI year-over-year

However, the recent report should not significantly change the Feds stance and the gold market, at least in the short run. The U.S. central bank is likely to remain on track to raiseinterest rates in December and to continue its gradual tightening. And the report on retail sales also came out on Wednesday: although they slowed in October (not surprisingly, given a sharp gain in September), they still managed to rise 0.2 percent, better than expected. Hence, the recent U.S. economic data may slightly support hawks at the Fed.

And if we see a steady (though slow) acceleration ininflation , the hawk camp at the FOMC will strengthen further. As wewrote yesterday, investors should not forget that, due to personal changes, the U.S. central bank is likely to be more hawkish next year (it is not good news for the price of gold). Hence, the Fed may hike interest rates more quickly in 2018 than investors currently expect, especially if the inflationary pressure picks up. It would bebearish for thegold market . Stay tuned!

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits Gold News Monitor and Market Overview Editor

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About the author

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits’ monthly Market Overview report and daily Gold News Monitors, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

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