Gold Prices Surge Ahead of Key U.S Inflation Data – What’s Next?

Fed’s Dilemma on Interest Rates Amid Looming Inflation

Following a recent string of mixed economic readings coming after the Fed raised its benchmark interest rate in July to the highest level in more than 22 years – an interesting debate is raging as to what the U.S Central Bank should do next; skip, pause or hike interest rates again in September.

The answer to that question may come from the Fed’s preferred measure of inflation – The Core Personal Consumption Expenditures Price Index, due for release on Thursday.

There has been a lot of focus recently on the Consumer Price Index’s headline inflation rate hitting 3.2% in July, but Federal Reserve officials are sticking to their guns. Their preferred inflation gauge remains the Core Personal Consumption Expenditure Price Index – and that still remains too high for Jerome Powell and his colleagues at the Fed.

During his speech at the Jackson Hole Economic Symposium, Jerome Powell warned of the “significant upside risks to inflation” – citing a range of scenarios included rising food and energy prices that could lead to a resurgence of inflationary pressures in the economy.

According to the Fed’s own economists, the uptick in Agriculture and Energy prices is a very reliable indicator that inflation could be heading back up in the fourth quarter of the year. In other words, a “second wave” of inflation on the way.

In an ideal world, to get inflation down to the Fed’s desired 2% target – Oil prices would need to fall below $60 a barrel and stay there. Unfortunately, with Saudi Arabia’s aggressive policy aimed at keeping Oil prices high – $80 a barrel appears to be the new floor for the market.

Inflation, Energy Prices, and Commodity Surge Challenge Federal Reserve’s Policy

Meanwhile, energy prices in the United States, which alone make up 8% of the CPI – are back on the rise again with the average price of a gallon of gas sitting around at $3.82. That’s the second highest price for this time of year since 2004.

The only time the national average has been higher for this period was last summer, when prices hit $3.85 a gallon.

Elsewhere in the Commodities complex, the disruptive impact of Global Warming and Climate Change has sent Agricultural Commodities from Orange Juice, Coffee, Sugar, Corn, Wheat, Cocoa, Soybean and Rice prices skyrocketing to all-time record highs.

And this could just the beginning!

That’s bullish news for Commodity traders, but bad news for Jerome Powell and his colleagues at the Federal Reserve, who now face one of their biggest policy dilemmas ever. Regardless of whether upcoming Inflation data meets, beats, or misses expectations – the outcome is guaranteed to move the markets significantly, presenting traders with huge opportunities to capitalize on!

Gold Price Forecast

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: