Gold Prices Drop As Inflation Pressures Hold Steady
(Kitco News) - Gold price are under pressure as inflation remains at an elevated level, according to the latest data from the The U.S. Department of Commerce.
Thursday the U.S. Personal Consumption Expendatures Index (PCE) showed inflation for the year was at 2.0%, unchanged from the previous month and in line with expectation.
Meanwhile Core PCE, which strips out volatile food and energy costs, also remained unchanged with an annual increase of 1.8%. The core data was slightly better than expected as economists were expecting to see a drop to 1.6%.
Gold prices dropped sharply in initial reaction to the data but has still managed to hold key support above $1,300 an ounce. August gold futures last traded at $1.305.60 an ounce.
According to some economists inflation pressures holding at elevated levels could solidify Federal Reserve interest rate hikes later in the year. The Market is already pricing a nearly 100% chance of a rate hike in June but there is still uncertainty if more action will in the fall and year end.
“Following a 0.2% monthly gain in the core PCE deflator, the core PCE inflation rate remained at 1.8% in April, unchanged from the downwardly-revised reading in March. But we still expect it to rise above the 2% target over the coming months, prompting the Fed to hike interest rates three more times this year, with the next move coming in June,” said Andrew Hunter, U.S. economist at Capital Economics.
Along with consistent inflation, the report also noted that consumption rose sharply in April, increasing 0.6%, following March’s 0.4% increase. Economists were expecting an increase of 0.4%.
However, the gains could be unstainable as the data shows that personal income only rose 0.3% last month, in line with expectations.
Katherine Judge, senior economist at CIBC World Markets, said that while consumption will continue to support the U.S. economy, inflation isn’t hot enough to raise expectations for aggressive Fed action.