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Gold prices bouncing off its lows as annual U.S. core CPI rises to its highest level since 1992

Kitco News

(Kitco News) - Gold prices are trying to bounce off their session lows, following a stronger than expected price in U.S. consumer prices.

Thursday, the U.S. Labor Department said its U.S. Consumer Price Index rose 0.6% in May, after a 0.8% rise in April. The data beat consensus forecasts as economists were forecasting a 0.4% rise.

For the year, the report said that headline inflation rose 5.0%. "This was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008."

Meanwhile, core CPI, which strips out food and energy costs, increased 0.7% in May, up from a 0.9% increase in April. Economists were expecting to see an increase of 0.5%.

For the year, core CPI is up 3.8%, the largest 12-month increase since the period ending June 1992, the report said.

The gold market appears to be catching a bid following the strong headline number. August gold futures last traded at $1,885.50 an ounce, down nearly .50% on the day. Heading into the report, gold prices were down roughly 1%.

Some market analysts have said that the stronger inflation data is negative for gold because it could force the Federal Reserve to tighten its ultra-loose monetary policy and reduce its monthly bond-purchase program sooner than expected.

However, other analysts note that despite the rise in inflation, the Federal Reserve will not be in a hurry to tighten interest rates anytime soon. The increase in inflation means that real interest rates will remain in deeply negative territory.

Katherine Judge, senior economist at CBIC, said that she doesn't see the central bank hiking interest rates until at least the third quarter of 2022.

"While the annual figures are being boosted by the comparison to weak year-ago readings, and the jump in inflation has been anticipated by the Fed, even when stripping out base effects by comparing the index to February 2020, core inflation is running above 2% on an annualized basis. This reading raises questions about what could mostly be temporary and related to supply chain issues, but could start to be built into inflation expectations," she said.

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