Will US CPI Data At 5.3% Drag Down Gold Bullion Prices?

The US today has published its Consumer Price Index (CPI) data for August, which will set a tone for the gold bullion market and US Federal Reserve tapering. US August headline inflation stayed at 5.3% in line with expectations, against a 5.4% in July. The CPI data remained moderate, not showing any outstanding improvement.

The gold rates in the global market have been going down marginally, mostly on every trading day. Spot gold prices were subdued by around 0.50%, whilst the Comex gold rates dropped by 0.35% before the data came out. However, after the data was released, the spot gold prices hiked by 0.23% at $1798.70, and the Comex gold futures went up by 0.35% as of 8.12 EDT - showing a minor growth. The spot USD index, however, fell by 0.30%.

The US CPI data for August is released ahead of the US Fed meeting in the next week. As the reports came out setting a moderately positive outlook, the Fed might move up its tapering timeline. If the US starts tapering after this CPI data, the gold prices will not react positively, else a delayed tapering will help gold rates to go up, impacting Indian gold rates accordingly.

Tapering will indicate a slowdown in the pace of asset purchases or bond-buying programs by the Fed. The bond-buying program, known as quantitative easing (QE) is still going hot in the US, as the central banks find a need for economic stimulus or more liquidity in the system. It is happening because of the pandemic-led economic slowdown in the country. If this inflation figure drives Fed officials to gather motivations to start tapering, bond yield will go high, while bond prices will head south. In that case, investors will take shelter again under government bonds, leaving the yellow metal prices to fall drastically. The recent US economic data including non-farm payroll, have only spelled doom for the precious metal.