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Gold Prices Down Following Hotter Than Expected June CPI Data

Kitco News

(Kitco News) - Gold is seeing some selling pressure but prices continues to hold above $1,400 after inflation came in slightly hotter than expected last month; however, some analysts have said that the inflation data is not enough to shift the current expectations of a rate cut by the end of the month.

Thursday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.1% in June, after a 0.1% rise in May. The data slightly beat expectations; consensus forecasts were calling for an unchanged reading.

For the year, headline inflation increased 1.6%, the report said.

Stripping out volatile food and energy prices, core inflation finally beat expectations,  increasing 0.3% in last month, following May’s rise of 0.1%. This was the first time in five month core CPI has risen above 0.1%. Economists were expecting to see a 0.2% rise. Annual core inflation dipped a tick lower rising 2.1% in May, up from 2.0% reported in May.

Gold prices have been pushing modest higher as markets continue to digest comments from Federal Reserve Chair Jerome Powell, who in his semi-annual testimony before Congress highlighted growing uncertainty weighing on U.S. economic growth. August gold futures last traded at $1,414.40 an ounce, up 0.14% on the day.

While rent and apparel costs have picked up, the report continued to highlight weak energy prices. The energy index fell 2.3% last month as all comonents of the index including gassoline prices dropped. For the year, the energy index is down 3.4%.

Although core CPI inflation is above the Federal Reserve’s 2% target, Avery Shenfeld, senior economist at CIBC Capital Markets, said that core PCE, the Federal Reserve’s preferred inflation measure remains below its target.

He added that the latest data won’t do much to shift the perception of a rate cut by the end of the month.

“Powell's fairly clear leaning to cutting rates now (from yesterday's testimony) still signals a quarter point cut this month, with today's firmer core reading just one more reason why a 50 bp cut in July is much more unlikely,” he said. “While the Fed has spoken about the risks of a more persistent downside miss to its inflation target as a reason to ease, we believe those risks are tied to their worry that a sustained growth slump is coming, and doesn't rest as much on the existing gap between inflation and the 2% target.”

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