Booming Gold Prices Are Hiding China’s Deflationary Pain for Now

Gold is a traditional hedge against inflation for investors but in China surging bullion prices are having the opposite effect, providing a temporary respite from deflationary pressures.

Core inflation last month saw its fastest increase in almost two years, unexpectedly helping the broader consumer-price index end a stretch of three months at or below zero. The precious metal in October contributed close to half or more of the 1.2% jump in the core index, which excludes food and energy, according to estimates from Goldman Sachs Group Inc. and Shenwan Hongyuan Group Co.

CPI “gains largely reflect temporary factors, most notably ...