Gold futures on the COMEX division of the New York Mercantile Exchange fell on Tuesday as the U.S. dollar showed strength in the wake of the consumer price index (CPI) report showing growing inflation.
The most active gold contract for December delivery fell 15 U.S. dollars, or 1.38 percent, to settle at 1,068.60 dollars per ounce. Gold was put under pressure as the U.S. Dollar Index rose by 0. 3 to 99.68 as of 18:30 GMT.
The index is a measure of the dollar against a basket of major currencies. Gold and the dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors. A report released by the U.S.
Department of Labor showed the CPI increased by 0.2 percent in October and the core measure also increased by 0.2 percent. Analysts note that both of these figures hit expectations and that this has kept a rate hike at the December Federal Open Market Committee (FOMC) meeting in play.
The main duties of the U.S. central bank are to control unemployment and inflation, and after the October employment report, analysts believe that much of the slack has been taken out of the jobs market. Analysts note that the only Fed target that has not yet been hit is 2 percent inflation, but with the CPI in line with expectations, they believe that a December rate hike is likely.
The market agrees with that assessment, as the CMEGroup's Fedwatch tool puts the current implied probability of a December rate hike at 68 percent. Expectations were originally for a delay in the rate hike until 2016 but the FOMC meeting in late October confirmed that the Fed wants to raise rates before the end of 2015.
An increase in the Fed's interest rate drives investors away from gold and towards assets with a return, as the precious metal bears no interest. There has not been an increase in the Fed's interest rate since June 2006, before the beginning of the American financial crisis. Silver for December delivery fell 5.1 cents, or 0.36 percent, to close at 14.171 dollars per ounce. Platinum for January delivery dropped 10.5 dollars, or 1.21 percent, to close at 855.00 dollars per ounce.
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