Rise in U.S. Consumer Inflation Pressures Gold Futures

December Comex Gold traded sharply lower on Tuesday, putting the market in a position to challenge last week’s low at $1073.00. Traders who covered their positions early Monday due to the attack on Paris are out and short-sellers have regained control.

A rise in U.S. consumer prices in October also contributed to the weakness. According to the U.S. Labor Department, the consumer price index increased 0.2 percent last month, reversing September’s 0.2 percent drop. The government said that declines in the cost of gasoline and a range of other goods rose. The rise also suggests that pressure from the strong dollar and lower oil prices seem to have eased.

In the 12 months through October, the CPI advanced 0.2 percent after being unchanged in September. Economists were looking for a 0.2 percent rise in October and a 0.1 percent rise from a year ago.

The firm CPI number offers more support to expectations that the Federal Reserve will raise interest rates next month. This news is supportive for the dollar and likely to put more pressure on the dollar-denominated gold market.

The EUR/USD and GBP/USD also felt pressure from the bullish U.S. CPI data. Additionally, sellers continued to push the Euro lower in anticipation of further dovish activity by the European Central Bank. The ECB is widely expected to increase stimulus in some fashion by either cutting interest rates further or extending or expanding its current 1.1 trillion Euro quantitative easing package.

The U.K.’s inflation rate as measured by the Consumer Price Index remained at -0.1% in October, according to the Office for National Statistics. This marked the first time the CPI has fallen on an annual basis for two months in a row since the index was created in 1997. A longer-term view identifies this as the ninth month running that CPI has been at or very close to zero.

The CPI news further dampened expectations of a rise in interest rates any time soon. Some economists are predicting that rates would not rise until well into next year.

The news produced a two-sided reaction by GBP/USD traders. Initially, the Forex pair broke on the hawkish U.S. CPI data, but rebounded after the U.K. CPI data met economist expectations.

January Crude Oil futures posted a sideways to lower trade on Tuesday. The market failed to follow-through to the upside after Monday’s strong technical correction. Traders appear to be trying to take out the premium created by security fears after the Paris attacks. Short-sellers now appear to be trying to regain control of the market with a renewed focus on the global oversupply in crude and other petroleum products.