Gold price sells off as U.S. CPI runs very hot

(Kitco News) - Gold prices are solidly down and hit an 11-month low in early U.S. trading at mid-week, following a U.S. inflation report that ran the hottest in 40 years, suggesting the Federal Reserve will keep its aggressive stance on tightening U.S. monetary policy. August gold futures were last down $12.10 at $1,712.50. September Comex silver futures were last down $0.048 at $18.92 an ounce.

The U.S. data point of the week, if not the month, saw Wednesday morning’s consumer price index report for June come in very hot at up 9.1%, year-on-year. Expectations were for a rise of 8.5%, year-on-year. In the May report, CPI was up 8.6% annually. The markets’ early reactions to the CPI report are suggesting there is a 75% chance the Fed will have to do another 0.75% rate hike at its next FOMC meeting on July 26-27. There is a 30% chance the Fed will do a full 1.0% rate hike at the meeting.

Global stock markets were mixed overnight. U.S. stock indexes are pointed toward solidly lower openings when the New York day session beings, and lost overnight gains after the hot CPI report.

Traders are still buzzing about Tuesday’s big downdraft in crude oil futures prices, with Nymex futures falling to a 2.5-month low of $93.67 overnight. Crude’s plunge pulled other major commodity market prices down, too. The weakening raw commodity sector is an early clue that inflationary pressures may have peaked.

In other overnight news, China’s exports rose in June by 17.9%, year-on-year, which was above market expectations. However, imports rose only 1.0% in the same period. Analysts expect China’s second-quarter GDP to be up only 0.9%, compared to a rise of 4.8% in the first quarter.

The key outside markets today see Nymex crude oil prices lower and trading around $95.00 a barrel. The U.S. dollar index is higher and hit a 20-year high following the hot CPI report. The yield on the 10-year U.S. Treasury note is fetching 3.047%--and rose significantly after the hot CPI report.

Other U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, real earnings, the weekly DOE liquid energy stocks report, the monthly Treasury budget statement and the Federal Reserve’s beige book.

Technically, the August gold futures bears have the solid overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at today’s high of $1,729.70 and then at this week’s high of $1,743.00. First support is seen at $1,700.00 and then at $1,685.00. Wyckoff's Market Rating: 1.0

September silver futures bears have the solid overall near-term technical advantage as prices hit a two-year low overnight. Silver bulls' next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at this week’s high of $19.31 and then at $19.50. Next support is seen at this week’s low of $18.63 and then at $18.50. Wyckoff's Market Rating: 1.0.

By Jim Wyckoff

For Kitco News

 jwyckoff@kitco.com

www.kitco.com