Gold Prices Plummet on Slower US Inflation and Strengthening Dollar

Gold prices slid on the Comex division of the New York Mercantile Exchange as investors reconsidered the precious metal's appeal as an inflation hedge. The data showing a 0.1% decline in U.S. consumer prices for October eroded demand for gold, which typically surges when inflation concerns rise. A strengthening dollar further weighed on dollar-denominated gold, making it more expensive for foreign investors to hold. Meanwhile, stronger crude oil prices offered a glimmer of support for gold.

Key Takeaways:

• Gold prices fell $24.70, or 1.4%, to $1,757.50 a troy ounce on the Comex division of the New York Mercantile Exchange due to slower US inflation and a strengthening dollar.
• The cost of living in the US declined 0.1% in October, according to data from the Labor Department, reducing demand for gold as an inflation hedge.
• A stronger dollar made gold contracts more expensive for foreign investors, who tend to be hesitant to buy gold futures when the dollar rallies.
• Stronger crude oil prices above $100 a barrel since July offered support for gold, with some analysts predicting gold will end up in positive territory before long.
• Matt Zeman, head of trading at Kingsview Financial, attributed gold's potential rebound to rising oil prices, saying, "If oil keeps running to the upside, gold will end up positive before too long."

Statistics:

• Gold prices fell $24.70, or 1.4%, to $1,757.50 a troy ounce.
• US consumer prices fell 0.1% in October.
• The dollar rallied against the euro, reaching $1.3509, down from $1.3858 at the start of October.
• Crude oil prices rose above $100 a barrel.
• Gold futures are typically considered a hedge against inflation, which diminishes investor demand when inflation concerns wane.

Sources:

• Dow Jones Commodities News via Comtex, Nov 16, 2011
• Dow Jones Newswires, Nov 16, 2011
• Labor Department, Data released on Nov 16, 2011