(Kitco News) - The gold market is experiencing some renewed volatility but continues to hold on to solid gains, even as inflation heated up more than expected last month.
The Consumer Price Index (CPI) rose 0.2% last month after August 0.2% increase, the U.S. Bureau of Labor Statistics said on Thursday. The latest inflation data was slightly stronger than expected, as economists were looking for a 0.1% increase.
In the last 12 months inflation rose 2.4%, down from August’s annual increase of 2.5%; however, consumer prices are still slightly hotter than expected; economists were anticipating a rise of 2.3%.
Inflation is also becoming embedded in the broader economy. The report said that core inflation, which strips out volatile food and energy prices rose 0.3% in September, following August’s 0.3% increase. According to consensus estimates, economists forecasted a 0.2% increase.
For the year annual core CPI rose 3.3%; economists were expecting to see a 3.2% increase.
Despite the hotter inflation, gold prices are trading near session highs. December gold futures last traded at $2,636.50 an ounce, up 0.4% on the day.
Some analysts note that the gold market has been able to hold its own in the face of higher consumer prices as it has not materially changed the Federal Reserve's outlook on economic activity and inflation.
Economists note that there are still expectations that the labor market will weaken through 2025, which will keep inflation pressures in check.
“On the whole, despite the figures being hotter than expected, it seems highly unlikely that the September CPI figures will materially alter the FOMC policy outlook. With policymakers having already obtained sufficient confidence in a sustainable return towards the 2% inflation target over the medium term, the labour market has now become the primary determinant of future policy shifts, with risks to each side of the dual mandate having come back into better balance,” said Michael Brown in a note following the data. “As a result, despite the stronger-than-expected September jobs report, and given continued disinflationary progress, 25bp cuts at each of the remaining 2 FOMC meetings this year, with that cadence of cuts likely to continue into 2025 as well, until the fed funds rate returns to a roughly neutral level around 3% next summer. Of course, were the labour market to materially weaken, likely defined as unemployment rising north of the 4.4% September SEP year-end forecast, the prospect of larger 50bp cuts remains on the table.”
Look at the components of inflation, the report noted a solid rise in shelter and food costs. The Shelter Index increased 0.2% last month while the Food Index increased 0.4%. “Together,
these two indexes contributed over 75 percent of the monthly all items increase.”
Meanwhile consumers continue to see easing energy prices; the energy index fell 1.9% last month, following August’s decline of 0.8%. For the year, the energy index decreased 6.8%.
Although inflation remains stubbornly elevated, Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance said that the economy remains fairly resilient.
“We think investors should be reassured that the economy is doing well, the labor market and consumer spending are both holding up well, and there doesn’t appear to be any signs of recession,” he said in a note. “It’s possible that the market will be disappointed that the Fed isn’t cutting more rapidly, but we have always said that people should be careful for what they wish for, because an environment which caused the Fed to cut in an extremely rapid manner is probably one where economic weakness (or outright recession) would overshadow the Fed’s rate cuts and cause the stock market to fall even faster.”
