(Kitco News) - The gold market continues to hold on to solid gains above $2,350 an ounce as inflation remains stubbornly elevated.
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 economists’ expectations.
However, in the last 12 months, consumer price pressure rose slightly more than expected to 2.8% in March, unchanged from February; according to consensus forecasts, economists were looking for price pressure to increase at a somewhat slower pace of 2.7%. Inflation remains well above the Federal Reserve’s target of 2%.
The report said headline inflation rose 0.3% last month, in line with expectations. However, continuing the trend, annual headline inflation was slightly hotter than expected, rising 2.7%, versus expectations for a 2.6% increase.
The gold market was seeing solid gains ahead of the report, and bullish momentum picked up in the initial reaction to the latest inflation data. June gold futures last traded at $2,357.60 an ounce, up 0.65% on the day.
Analysts note that the Federal Reserve is facing a challenging environment as inflation remains stubborn and economic activity begins to weaken. The latest inflation data comes a day after first-quarter GDP data. Between January and March, the U.S. economy saw the slowest pace of growth in nearly two years.
Some analysts have said that when faced with a stagflationary environment, the U.S. central bank will likely ignore elevated inflation and focus on supporting the economy, which would be a positive environment for gold.
The latest inflation data has not impacted market expectations regarding the Federal Reserve’s monetary policy. Markets continue to price out interest rate cuts in June and July. Some analysts have said the Federal Reserve is likely on hold until after the U.S. 2024 election.
The report also noted mixed consumption data as consumers dip further into their savings and credit. The report said that personal income increased 0.5% last month, in line with expectations and up from 0.3% reported in February.
At the same time, personal spending increased 0.8%, rising more than expected; according to consensus estimates, economists were looking for a 0.6% increase.
Paul Ashworth, Chief North America Economist at Capital Economics, said that although inflation was a ticker hotter than expected last month, he expects the two-year downtrend to remain.
“Despite the temporary surge in inflation in the first quarter, the fundamentals and the survey-based evidence both point to a resumption of the disinflationary trend soon. Although employment growth remains robust and the unemployment rate has not risen much, the decline in job openings and job quits suggests a marked rebalancing in labour demand and supply – driven by rising participation and strong immigration. Housing inflation is proving to be a bit sticky, but should still moderate over the rest of this year,” he said in a note.
