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(Kitco News) - The gold market remains on the defensive, with prices trying to push into neutral territory as inflation pressures rise in line with expectations.
Friday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.3% last month, compared to April's increase of 0.4%. The inflation rose in line with economists' expectations.
Meanwhile, inflation in the last 12 months rose 4.6%, down a tick from April's 4.7% increase. Annual inflation was slightly cooler than expected as economists forecasted an unchanged reading. However, looking at the broader trend, inflation remains stubbornly high, more than double the Federal Reserve's target of 2%.
The gold market is struggling to find direction following the latest economic data as prices flirt with unchanged levels. August gold futures last traded at $1,916 an ounce, down 0.10% on the day.
However, headline inflation is falling at a faster rate than core prices. The report said that headline PCE rose 0.1%, compared to April's increase of 0.4%.
For the year, inflation rose 3.8%, down from April's revised increase of 4.3%.
Looking at consumption data, the report notes that consumers appear to be building a safety net as personal income outpaces spending. The report said that personal income rose 0.4%, beating expectations. Economists were looking for a 0.3% increase.
At the same time, personal spending rose 0.1%, missing expectations. Consensus forecasts called for an increase of 0.2%.
Although core inflation remains stubbornly high, Andrew Hunter, deputy chief economist at Capital Economics, said that weak economic activity due to lackluster consumption will force the Federal Reserve to end its tightening cycle after one last hike in July.
"Even allowing for a pickup in June, following reports of a rebound in auto sales, we estimate that real consumption growth will slow to around only 1% annualized in the second quarter. As a result, we still expect overall GDP growth to have slowed sharply in the second quarter, to 0.5% annualized," he said. "Overall, there is little here to stop the Fed from hiking rates again at the late-July FOMC meeting, but with consumption growth and core inflation losing momentum, we still think that hike will prove to be the last."
