 | Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here! |
(Kitco News) - The gold market is holding solid gains but is not seeing a major reaction as inflation cools slightly more than expected but remains elevated.
Thursday, the U.S. Labor Department said its much-anticipated Consumer Price Index rose 0.2% last month, following a 0.2% rise in June. The data was in line with expectations.
However, annual inflation provided a more nuanced picture of consumer prices. For the last 12 months, the report said that annual inflation rose 3.2%, up from 3% in June. Annual inflation came in slightly weaker than economists’ expectations. Consensus forecasts called for a reading of around 3.3%.
The gold market, while holding on to earlier gains, is not seeing much reaction to the latest inflation data. December gold futures last traded at $1,962 an ounce, up 0.58% on the day.
Some analysts note that gold is not seeing much reaction to the inflation data because it has not provided any decisive information on where U.S. interest rates are headed. However, some analysts note that cooling pressures means that the Federal Reserve has room to keep interest rates unchanged through year-end.
However, other economists note that core inflation remains stubbornly elevated even as prices slowly cool.
Stripping out volatile food and energy prices, the report said that core CPI rose 0.2% in July, following a 0.2% increase in June. However, for the year, core inflation rose 4.7%, down compared to expectations for a rise of 4.8%.
Some analysts have said that the Federal Reserve cannot afford to ease interest rates anytime soon as core inflation remains well over the 2% target.
The report said that shelter costs continue to dominate consumer purchases, accounting for 90% of the rise in inflation last month. Rising motor vehicle insurance also contributed to inflation last month, the report said.
Energy costs rose at a moderate pace last month, rising 0.1%. For the year, the energy index rose 12.5%. Food prices also remain elevated with the index rising 4.9% in the last 12 months.
Paul Ashworth, chief North American economist at Capital Economics, said that the data should push the Federal Reserve to the sidelines through the rest of the year.
“We know shelter costs are a lagging indicator and the collapse in measures of new rent inflation demonstrate that over the next 12 months, shelter inflation will not just fall back to more normal rates, but might even drop below the pre-pandemic average,” he said. “Overall, there’s nothing here to suggest the Fed needs to push ahead with further interest rate hikes this year.”
For some market analysts, gold could see higher prices if the Federal Reserve moves into a holding pattern. Markets see a less than 10% chance of a rate hike in September and a 30% chance of a rate hike in November.
