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Weak Inflation Data Push Gold Prices To Session Highs

Kitco News

(Kitco News) - Gold prices pushed to session highs after U.S. inflation data came in weaker than expected.

Wednesday, the U.S. Labor Department said its U.S. Consumer Price Index fell 0.1% in March, after increasing 0.2% in February. The drop was weaker than expected as consensus forecasts were calling for an unchanged reading.

The decrease in inflation pressures did not have a major impact on the annual data. For the year CPI rise 2.4%, its highest read in a year.

Monthly core inflation, which strips out volatile food and energy costs, rose 0.2%, following a 0.2% increase in February. The data was in line with economist expectations.

Annual core inflation jumped to 2.1% last month, its highest level in more than a year.

The weak inflation data was positive for the gold market, which is also benefiting from rising geopolitical tension. Ahead of the report gold was trading at a two-week high after President Donald Trump issued a warning on Twitter, of imminent military action in Syria. June Comex gold futures last traded at $1,258.20 an ounce, up almost 1% on the day.

While gold is sees as an inflation hedge, analysts have said that weak prices pressure could help gold because it will keep the Federal Reserve from aggressively raising interest rates.

Markets will get a better read on the opinions among central bankers later this afternoon when the minutes from the March monetary policy will be released.

Although core CPI has now pushed above 2% for the first time in more than a year, economists don’t think it will prompt the Fed to move any quicker than previous expected.

“Annual rates of both headline and core CPI moved higher partly due to a sharp drop in telecomms prices a year ago falling out of the annual calculation,” said Andrew Grantham, senior economist from CIBC World Markets. “Even though core CPI is now back above 2%, it remains below the average level seen prior to last Spring's sharp deceleration, and would still leave core PCE tracking a little below 2%. As such, we see no reason to change our forecast for only 2 more hikes by the Fed throughout the remainder of the year.”

Looking at the data, the sharp drop in headline inflation was due to weaker gas prices. The report said that the gasoline index dropped 4.9% last month.

“A decline in the gasoline index more than outweighed increases in the indexes for shelter, medical care, and food to result in the slight seasonally adjusted decline in the all items index,” the report said.

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