Gold is seeing renewed pressure as an upbeat consumer inflation report increase the odds of a rate hike by the Federal Reserve at its meeting next month. October CPI rose 0.2%, matching Wall St.’s expectations. Core CPI, which strips out energy and food prices, also rose 0.2%. The same core CPI was up 1.9% from this time last year, stoking expectations of Fed rate hike, and supporting the dollar. Gold dropped on the news, breaking under recent firm support at $1,079 an ounce. Next support is the $1,073 level.
Consumer Inflation Picture
Rents and medical care were the two sectors that rose the most in the latest consumer price index. A 17% drop in energy prices are the main catalyst for low inflation readings, a situation that could change quickly if intensified air campaigns against the self-styled Islamic State result in more terror attacks in the Middle East.
The US dollar is up marginally, near a seven-year high as the euro continues to weaken. Greenback bulls may be digesting yesterday’s gains, which saw the dollar rise to a seven-month high against a basket of currencies. A stronger dollar is deflationary, as it makes imports cheaper.
Russia Joins France Over Raqqa
Russian president Vladimir Putin, announced yesterday that an investigation into the loss of a Russian airliner over Sinai concluded that a bomb destroyed the plane, killing all 224 people. A Daesh branch in the Sinai, which is fighting the Egyptian government, had claimed responsibility. Putin swore to intensify the air campaign in
Syria, changing the focus of its attacks to the Daesh/ISIS. Speaking to the press, he said “Our air force’s military work in Syria must not simply be continued. It must be intensified in such a way that the criminals understand that retribution is inevitable.” Russian attack planes took turns with French Rafale fighter jets in pounding the Daesh “capital” of Raqqa, in eastern Syria, on Tuesday.
USD the Big Bully Ahead of Rate Hike
The US dollar is running rampant over commodities, as upbeat inflation numbers increase the chances of a Fed rate hike. Crude oil isn’t just fighting the dollar, it’s attempting to survive the biggest oil glut the world has ever seen. US oil futures are giving back some of yesterday’s big gains, earned after bear speculators failed in pushing the price under $40 per barrel. Midday WTI oil futures are struggling to stay above the $41 mark, while Brent crude continues to slide.
The euro is falling, as risk-off worries in Europe and good economic news in the US, have people moving into the dollar.
Treasuries continue to fall, as the desire to get out of bonds holding the “old” rate outweigh any safe haven demand. the Fed Funds Futures rate is still signalling a 70% chance the the Fed will hike interest rates next month. Speaking of the Fed’s opinion on inflation, the minutes from last month’s FOMC meeting are released tomorrow. Bloomberg gives a run-down on what to look for (besides market volatility in the immediate aftermath of the report’s release.)
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