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Gold Prices See Brief Pop Following Disappointing U.S. Inflation Data

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(Kitco News) - Gold prices have pushed to near session highs as U.S. inflation pressures remain muted.

Thursday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.2% in April, after decreasing 0.1% in March. The increase was weaker than expected as consensus forecasts were calling for a 0.3% rise.

For the year, the report said that annual headline inflation increased 2.5%, driven mostly by higher gasoline prices and rental costs.

Monthly core inflation, which strips out volatile food and energy costs, rose 0.1%, following a 0.2% increase in March. Economists were expecting to see a 0.2% rise in price pressures. Annually, core inflation increased 2.1%, slightly above the Federal Reserve’s 2% target.

Gold prices were modestly positive ahead of the data and have jumped slightly higher in initial report in initial reaction. June gold futures last traded at $1,321.30 an ounce, up 0.62% on the day.

According to some commodity analysts, the inflation data is positive for gold because it shows that price pressures are moving up but not at a pace that warrants aggressive action from the U.S. central bank.

Last week after its monetary policy meeting the Federal Reserve suggested that it was comfortable with inflation rising above its 2% target. In its statement the central bank said that it sees inflation running near its “symmetric 2 percent objective over the medium term.”

Analysts have noted that rising inflation in a low interest rate environment is positive for the gold market as real interest rates will remain low.

Royce Mendes, senior economist at CIBC World Markets said that he expects the latest inflation data to weigh on a surging U.S. dollar, which should provide some near-term support for gold. He added that if economic growth remains strong the U.S. central bank is on target to raise interest rates in June, despite the weak inflation data,.

"But this does further tilt the odds in favour of two more rate hikes this year rather than the three some Fed officials have been suggesting," 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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