(Kitco News) - Gold investors, with nothing else to do, can at least breathe a sigh of relief 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. The data rose in line with economist expectations.
However, as a sign that inflation pressures aren’t going away, the report also noted an upward revision for January, with core inflation rising by 0.5%.
For the last 12 months, consumer price pressure continued to ease, rising 2.8% in February. Although inflation is still well above the Federal Reserve’s target of 2%, it continues to trend lower.
The report said headline inflation rose 0.3% last month, a tick lower than expected. Economists were looking for a 0.4% increase. For the year, headline inflation rose 2.5%, in line with consensus projections.
Markets are closed for Good Friday, so there has been no reaction to the latest inflation data.
With inflation pressures rising in line with expectations, investors could start to focus on a growing imbalance in the economy as consumers spent more than they made last month.
The report said wages increased less than expected last month, rising 0.3%. According to consensus forecasts, economists were looking for a 0.4% increase. Meanwhile, personal consumption jumped 0.8% in February. Economists forecasted a 0.5% increase.
According to some economists, the in-line inflation data could support the Federal Reserve's plan to begin its easing cycle in June, even as inflation remains elevated.
Last week, the Federal Reserve signaled it wanted to cut interest rates three times this year, even as inflation was holding around 2.4%.
An impending pivot in the U.S. central bank’s aggressive monetary policies has emboldened gold investors in recent days. Thursday, during the final trading day in March and the first quarter, June gold futures rose to a new all-time high of $2,256.90 an ounce and settled the session at $2,234.40 an ounce.
In an interview with Kitco News, Darin Newsom, Senior Market Analyst at Barchart, said that inflation could be one factor in why the gold market has been able to defy fundamental and technical logic.
Gold’s rally on Thursday came despite resilient strength in the U.S. dollar, which closed the session near a six-week high above 104 points.
“Gold could be telling us that inflation will stay around for a while. And that there's a real there's a real threat geopolitically,” he said.
Some analysts have also noted that gold doesn’t actually need a rate cut to maintain its upward trajectory. While higher inflation could keep the Federal Reserve from cutting rates this year, it is unlikely they will raise interest rates. This environment would still push real interest rates lower, which should weigh on the U.S. dollar, supporting gold prices.
