(Kitco News) - The gold market has been unable to hold on to its overnight gains Tuesday morning as the U.S. economy’s fight with inflation proves to be far from over.
Tuesday, the Bureau of Labor Statistics said that its Consumer Price Index rose 0.3% in January, following December’s 0.2% increase. The data was hotter than expected with consensus forecasts calling for a 0.2% increase.
At the same time headline inflation in the last 12 months rose more than expected, increasing 3.1%. According to consensus estimates, economists were looking for an annual increase of 2.9%.
The inflation data is taking its toll on gold as prices have slipped into negative territory in their initial reaction to the hotter inflation data. April gold futures last traded at $2,028.70 an ounce, down 0.19% on the day.
Along with the hotter headline inflation, the report notes that higher consumer prices remain embedded in the broader economy as core CPI, which strips out volatile food and energy prices, increased 0.4% last month.
Core inflation is proving to be fairly stubborn rising 3.9% in the last 12 months, unchanged from December’s reading. However, annual core inflation remains hotter than expected as economists were looking for an increase of 3.7%.
The latest inflation data is taking its toll on gold as the U.S. dollar sees renewed buying momentum. Higher consumer prices are also causing markets to further shift their expectations for Fed rate cuts. A March rate cut has practically been priced out of the market. At the same time, the CME FedWatch Tool shows markets see a 32% chance of easing in May, down sharply from Monday when markets saw a 52% chance of a cut.
Many commodity analysts have noted that gold will continue to struggle until there are clear indications that the Federal Reserve is ready to cut interest rates, embarking on a new easing cycle.
