(Kitco News) - The gold market is seeing solid momentum, trading near session highs as U.S. inflation pressures rise in line with expectations. Some analysts say this gives the Federal Reserve room to lower interest rates at the end of the quarter.
Friday, The U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to May’s increase of 0.2%. The data rose in line with expectations.
In the last 12 months core PCE inflation rose 2.6%, unchanged from May’s reading. Annual inflation is a tick higher than expected as economists were expecting to see 2.5%.
The latest inflation data has not shifted expectations around the Federal Reserve’s monetary policy. Markets continue to fully price in a rate cut in September.
“The 12m annual core inflation rate remained unchanged at 2.6%, but the three-month annualised rate dropped back to 2.3%, from 2.9%. The Fed will also be reassured to see core services ex. housing coming in at 0.18% m/m last month, following a 0.17% gain in May, suggesting that the labour market rebalancing is now having a more marked downward impact on labour-intensive services components,” said Paul Ashworth, Chief North America Economist at Capital Economics.
The gold market is trading in positive territory near its session highs in initial reaction to the data. August gold futures last traded at $2,374.40 an ounce up 0.88% on the day.
While core inflation is holding steady, overall inflation continues to decline. In June, headline PCE rose 0.1%, compared to May’s unchanged reading. For the year inflation rose 2.5%, down compared to 2.6%.
Along with neutral inflation, the U.S. economy looks to be in a holding pattern as consumption remains fairly stable.
The report said that personal income rose 0.2% last month, down compared to May’s rise of 0.5%. The data was weaker than expected to see a 0.4% increase.
At the same time, personal consumption increased 0.3%, up from last month’s increase of 0.2%. Consumption rose in line with expectations.
