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Gold Breaks Through Support as Inflation Eases

David Becker
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Gold prices sliced through support levels on Thursday on the heels of weaker than expected inflation number that reflect a declining price environment. Gold prices are usually used as a proxy for inflation, and with consumer and producer prices declining as reported this week by the Department of Labor, gold has declined in tandem.

Over the past two days the US labor department released consumer and producer inflation data that showed the erosion of price pressures. Producer prices fell for a second straight month in October, according to the Bureau of Labor Statistics. The producer price index declined 0.2 percent last month driven down by falling gasoline prices. On a year over year basis wholesale prices increased 0.3 percent after climbing by a similar number in September. Core producer prices which remove food and energy increased 0.2 percent in October.

In October, the consumer price index declined 0.1 month over month after rising 0.2% in September. Economists had expected the CPI to remain unchanged. CPI printed at 1.0% year over year from September’s 1.2% reading, which was in line with expectations. The core CPI, which excludes food and energy increased by 0.1% in October month over month, and the year over year in consumer inflation, was unchanged from September at 1.7.

Gold prices sliced through support levels falling to the lowest levels seen since July. The next level of target support on gold is seen near 1207, which coincides with the July lows. Momentum on gold is negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The MACD index moved from positive territory to negative territory confirming the sell signal on the yellow metal.

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