Soft Inflation Propels Gold Over $1,300

October 13th, 2017 by

Gold prices shot above $1,300 an ounce this morning on renewed worries over low inflation. Precious metals across the board were higher, as weak CPI numbers for September pulled the rug from under the dollar. Persistently low inflation has markets worried that the Fed may decide to push back the “slam dunk” interest rate hike scheduled for December.

All of the precious metals were higher by at least 0.5%, with palladium once again out-performing the rest of the sector, Spot prices for palladium are up more than $20 an ounce this morning, after rising $12 on Thursday. With a 44.25% year-to-date jump in prices on the futures charts, palladium is by far the best performing commodity this year.

Stocks were higher in Asia and Europe this morning, with the Nikkei 225 rising above the 21,000 mark for the first time since 1996. Wall St opened higher today, set to reverse yesterday’s losses after setting new records Wednesday.

Consumer prices for September were released this morning, with the underlying core measure coming in softer than expected. Overall, the Consumer Price Index rose 0.5% last month, the strongest showing since January. However, it was less than the 0.6% expected by economists.

The major positive factor in the measurement was the hurricane-induced spike in gasoline prices. Without this, consumer inflation would have been much lower. The 13.1% spike in gas prices accounted for 75% of the 0.5% rise in consumer prices last month. As the oil refineries along the Gulf Coast and shale oil fields in south Texas resume operation, this major pillar of inflation will disappear.

Core CPI, which strips out food and energy, barely rose at all, posting a 0.1% gain. Year-over-year, core CPI rose 1.7% for the fifth month in a row—far below the Fed’s 2% target. Some senior Fed officials are starting to question the assertion that weak inflation has been due to “transitory factors,” suggesting that there will be greater opposition to a December rate hike.

Regarding those oil prices, hope springs eternal at OPEC. The latest projection from the petroleum cartel says that the global oil glut will be cleared out by the third quarter of next year. In the short term, the dollar isn’t the only tailwind for oil today. A large jump in oil demand from China is combining with aggressive language out of the White House towards Iran to raise crude prices.


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