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Gold Prices Holding Their Ground After Mixed U.S. CPI Data

Kitco News

(Kitco News) - Gold prices are holding decent gains as consumer inflation pressures remain relativley muted last month.

Wednesday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.1% in May, after a 0.3% rise in April. The data in line with consensus forecasts. According to reports, this is the smallest increase in inflation since the start of the year.

The report said that annual headline inflation increased 1.8% last month.

Stripping out volatile food and energy prices, core inflation rose slightly less than expected, increasing 0.1% in last month, following April’s rise of 0.1%. This is the fourth month core CPI has risen 0.1%, missing expectations. Economists were expecting to see a 0.2% rise. Annual core inflation dipped a tick lower rising 2.0% in May, down from 2.1% reported in April.

According to some commodity analysts, the low inflation data is positive for gold as it supports Federal Reserve rate cuts, which could come as soon as next month. August gold futures last traded at $1,339.20 an ounce, up 0.60% on the day.

Looking at the components of the report, falling oil prices drove the energy costs lower. The report said that the overall energy index dropped 0.6% last month. The gasoline index dropped 0.5% last month.

Although U.S. inflation remains stubbornly low, Michael Pearce, senior U.S. economist at Capital Economics said that it is unlikely to provoke the Federal Reserve to lower interest rates in July.

“We don’t think the Fed will cut interest rates imminently,” he said. “But we expect that a further slowdown in economic growth, together with still muted inflation, will be enough for the Fed to pull the trigger and begin cutting rates later this year.”

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