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Gold Prices Remain At 5-Week Low Following Rise In PCE Inflation

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(Kitco News) - Gold prices continue to trade near a 5-week low as inflation pressures rise in line with expectations, according to the latest data from the U.S. Commerce Department.

Monday, the Commerce Department said that its Personal Consumption Expenditures Index increased to 2.0% annually in March, up from the 1.7% increase reported in February.

At the same time core PCE, which strips out volatile food and energy prices and is the Federal Reserve’s preferred inflation measure showed an annual increase of 1.9%, up from February’s reading of 1.6%. The data was in line with economists’ expectations.

Gold prices are ignoring the inflation data and according to analysts, reacting to a stronger U.S. dollar and easing geopolitical tensions, reduced the yellow metal’s safe-haven appeal. June gold futures last traded at $1,314 an ounce, down 0.71% on the day.

Along with inflation data, the report also said that personal spending rose 0.4% in March, up from a 0.2% rise in February. The data was in line with expectations.

However, consumers continue to spend more than they make as income only rose 0.3% last month, down from February’s 0.4% rise. Economists were expecting to see another 0.4% rise.

Katherine Judge, senior economist at CIBC World Markets, said that the relatively in-line data will have little impact on interest rate expectations. Markets are pricing in the possibility of three more rate hikes this year.

Judge said that the data “Confirms that consumption gained momentum towards the end of the quarter, however, the slightly softer income numbers may dampen expectations a little for Q2 consumer spending.

“We still think that tax cuts will lead to a pickup in consumer spending over the remainder of the year,” she added.

Looking ahead, Michael Pearce, senior U.S. economist at Capital Economics said that they see the potential for core PCE to rise above 2% later in the year. He added that this could end up prompting the Fed to raise rates four times this year.

“As the weaker dollar feeds through to stronger imported goods prices and wage pressures continue to build, we think core inflation will rise above the Fed’s 2% target later this year and trend gradually higher from there,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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