Gold Unable To Hold Gains As Annual Inflation Remains Unchanged In June
Editor's Note: The article was updated to reflect a sharp chang in gold prices following the release of June consumer income and spending data.
(Kitco News) - The gold market has given up its gains following a brief spike higher as U.S. Inflation data remains unchanged on the year.
Tuesday, the U.S. Commerce Department said that its Personal Consumption Expenditures Index increased 0.1% in June. However, annual inflation remained unchanged from 2.2% in May.
Core PCE increased also increased 0.1% for the month and was unchanged on the year at 1.9%. It has remained at that level for the last three months and remains slightly below the Federal Reserve’s target of 2.0%.
Gold prices initially jumped into unchanged territory on the day in initial reaction to the data; however, the gains were short lived as the market is now back under pressure. December gold futures last traded at $1,228.30 an ounce, down 0.25% on the day.
Economists have noted that muted inflation pressures could keep the Federal Reserve from aggressively tightening monetary policy later in the year, which would weaken the U.S. dollar and support gold prices.
The latest inflation data comes as the U.S. central bank starts its two-day monetary policy meeting. Currently the Federal Reserve is expecting to raise interest rest rates two more times this year; however, some members have advocated for holding off in raising interest rates until there is a clear upward trend in inflation.
While the inflation data was slightly disappointing, the market didn’t get much to chew on with personal income and spending data. The Commerce Department said that personal spending increased 0.4% last month, up from May’s increase of 0.2%. The data was in line with expectations.
Income also increased 0.4% in June and was in line with expectations.
Adam Button, senior currency analyst at Forexlive.com, said that there was little in the data to support U.S. dollar bulls, which could provide some relief for the gold market.
Some analysts note that the latest economic data points to a modest pullback in growth in the third quarter from 4.1% reported in the second quarter. However, Andrew Hunter, U.S. economist at Capital Economics said that it won’t stop the Fed from its current interest rate path.
He added that with current market conditions, it is only a matter of time before inflation hits 2%.
“Overall, [the data] provides a decent hand-off to the third quarter,’ he said. “Spending growth is still likely to slow to a more sustainable pace, particularly as the one-time boost from the tax cuts fades. But for now at least, that slowdown looks set to be fairly gradual.”