(Kitco News)- After a record run to all-time highs, the gold market is seeing some new selling pressure as investors react to hotter-than-expected inflation data that could force the Federal Reserve to maintain its aggressive monetary policy longer than expected.
The Consumer Price Index (CPI) rose 0.4% last month after January’s 0.3% increase, the U.S. Bureau of Labor Statistics said on Tuesday. The latest inflation data was hotter than expected as economists looked for a 0.3% increase.
The report said that in the last 12 months, headline inflation rose 3.2%
At the same time, inflation continues to embed itself in producer prices. Core CPI, which strips out volatile food and energy prices increased 0.4%, in line with expectations.
The report said that annual core inflation rose 3.8%.
The gold market is struggling as the latest inflation data is adding to the technical selling pressure. April gold futures last traded at $2,179.30 an ounce, down 0.38% on the day.
According to the report, higher shelter costs and rising gasoline prices were the two biggest factors driving inflation last month.
“The energy index rose 2.3 percent over the month, as all of its component indexes increased,” the report said.
Although inflation rose more than expected, there are some economists who still expect the Federal Reserve to begin its easing cycle in June.
“We still believe there is plenty of disinflationary pressure to feed through, particularly with unit labour cost growth back down to its pre-pandemic rate. On balance, we expect the Fed to begin cutting interest rates in June, by which time there will be more evidence of core PCE inflation moving close to the 2% target. But that will now require a shift in tone in the March CPI data,” said Paul Ashworth, Chief North America Economist at Capital Economics.
At the same time, while expectations for a rate cut in June have pared back slightly, markets still see a more than 70% chance of easing in June, according to the CME FedWatch Tool.
