Gold price down on US inflation data

Chicago (Sept 17)  Gold futures on the COMEX division of the New York Mercantile Exchange fell on Friday as inflationary data put pressure on the precious metal.

The most active gold contract for December delivery fell 7.8 U.S. dollars, or 0.59 percent, to settle at 1,310.2 dollars per ounce.

A report released by the U.S. Department of Labor on Friday showed the consumer price index (CPI) increasing by a more-than-expected 0.2 percent during the month of August, which is a 1.1 percent increase over the same period during the previous year.

Analysts note that most sub-measures also showed an increase in price. This gives ammunition to hawks in the U.S. Federal Reserve, as the two primary duties of the U.S. central bank are to promote employment and keep inflation under control.

Current expectations are that the Fed may raise rates from 0.50 to 0.75 during the December FOMC meeting. According to the CME Group's Fedwatch tool, the current implied probability of a hike from 0.50 to 0.75 is at 15 percent at the September 2016 meeting, 22 percent at the November 2016 meeting, and 52 percent at the December meeting.

Analysts believe Fed intends to soak up some of the banks' 2.5 trillion U.S. dollars of excess reserves. As the U.S. economy begins to recover, banks become more willing to take risks in a bullish economy, and as a result could potentially release some of their excessive reserves, flooding the economy with cash, causing inflation.

Additionally the U.S. Dollar Index rose by 0.84 percent to 96.08 as of 1715 GMT. The index is a measure of the dollar against a basket of major currencies. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.

Silver for December delivery fell 17.9 cents, or 0.94 percent, to close at 18.862 dollars per ounce. Platinum for October delivery dropped 16.2 dollars, or 1.57 percent, to close at 1,017.6 dollars per ounce.

Source: Reuters