Gold prices rose sharply on Thursday as the dollar tumbled after data showing a smaller than expected increase in U.S. consumer prices in the month of October helped raise optimism the Fed will slow down the pace of interest rate hikes from as early as next month.
The Labor Department’s data showed the consumer price index rose by 0.4% in October, less than expected increase of 0.6%. The annual rate of growth in consumer prices also slowed to 7.7% in October from 8.2% in September.
The annual rate of growth in core prices slowed to 6.3% in October from 6.6% in September, coming in below the expected 6.5% growth.
The dollar index dropped to 108.19 around late morning, and despite recovering to 108.50 subsequently, remained deep down in negative territory, losing nearly 1.9%.
Gold futures for December ended higher by $40.00 or about 2.3% at $1,753.70 an ounce, the highest settlement since late August.
Silver futures for December ended up $0.375 at $21.702 an ounce, while Copper futures for December settled at $3.7580 per pound, gaining $0.0580.
Edward Moya, senior market analyst at OANDA, says the cool inflation report has made markets confident that the Fed can downshift to half-point rate hiking pace and possibly done with tightening after the March FOMC meeting.
“Gold is breaking out here and it could have a steady path towards the $1800 level if dollar weakness remains,” Moya says.
CME Group’s FedWatch Tool is currently indicating an 85.4 percent chance of a 50 basis point rate hike next month and a 14.6 percent chance of another 75 basis point rate hike.
A separate report released by the Labor Department showed initial jobless claims crept up to 225,000 in the week ended November 5th, increase of 7,000 from the previous week’s revised level of 218,000.
Economists had expected jobless claims to inch up to 220,000 from the 217,000 originally reported for the previous month.
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