Gold price sees steady rise above $1,700 following muted U.S. CPI numbers
(Kitco News) - The gold market is seeing a steady rise and continues to hold healthy gains above $1,700 an ounce even as inflation pressures remain muted.
Wednesday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.4% in February, after a 0.3% rise in December. The data in line with consensus forecasts.
For the year, the report said that headline inflation rose 1.7%.
However, stripping out volatile food and energy prices, core inflation was weaker than expected, rising 0.1% last month, after seeing no change in inflation in January. Economists were expecting to see a 0.2% rise in consumer prices.
Annual core inflation rose 1.3% last month, down from January's reading of 1.4%.
Gold prices have seen a steady rise in initial reaction to the latest inflation data. April Gold futures last traded at $1,716.90 an ounce, unchanged on the day.
Economists and analysts note that weak inflation pressures could be a positive for gold as it recovers from its 10-month low at the start of the week. Analysts have pointed out the latest inflation data give the Federal Reserve some flexibility to provide more accommodative monetary policies.
Although gold prices are up, some analysts have said that for prices to push back to last summer's all-time highs, the U.S. economy needs to see persistently higher inflation, which has been challenging to achieve as the economy continues to feel the devastating effects of the COVID-19 pandemic.
Adam Button, chief currency strategist at Forexlive.com, said that inflation is still not a front-page issue for most investors.
"The real question is how hot prices run when the economy reopens and whether that's a one-off or sustained," he said.
Looking at some of the components of the report, rising gasoline prices, due to rising crude oil prices, accounted for more than half of the increase in inflation last month. The gasoline index rose 6.4% in February, the report said.
Last month crude oil prices rose above $60 a barrel for the first time in more than a year.
Katherine Judge, senior economist at CIBC, also said that it will take some time to determine the long-term trend in inflation.
“Inflation is set to get a lift in the months ahead from gasoline prices, while base effects will amplify price gains along with an expected surge in demand as re-openings continue and fresh fiscal stimulus is received,” she said. “However, price pressures should moderate somewhat in the second half of 2021, although 2022 will see underlying prices heat up enough to cause the Fed to hike rates in Q3 2022.”