(Kitco News) - Gold prices are once again testing resistance just below $2,700 an ounce as U.S. inflation data supports the Federal Reserve’s easing cycle.
The Consumer Price Index (CPI) rose 0.4% last month after November’s 0.3% increase, the U.S. Bureau of Labor Statistics announced on Wednesday. The inflation data was in line with expectations.
The report noted that, over the last 12 months, headline inflation rose 2.9%, also in line with expectations.
Core CPI, which strips out volatile food and energy prices, increased 0.2% last month, coming in slightly cooler than expected. According to consensus estimates, economists had forecast a 0.3% increase in core consumer prices.
The report stated that annual core inflation rose by 3.2% last month. Core inflation over the past 12 months rose at its slowest pace since August.
The gold market attracted a burst of buying attention, jumping to session highs in an initial reaction to the inflation data. Prices have since fallen from the initial high but remain elevated; spot gold last traded at $2,686.80 an ounce, up 0.36% on the day.
Although gold saw a brief rally following the inflation numbers, some analysts have said the data does not change the broader landscape, as markets continue to price in only one rate cut this year.
“The CPI figures don’t add particularly much to the broader discourse, instead, serving to reaffirm that underlying price pressures remain relatively stubborn and that the path back towards the 2% inflation target will be a relatively turbulent one,” said Michael Brown, Senior Researcher at Pepperstone, in a note.
“The FOMC remains on course to ‘skip’ the January meeting, particularly in light of the resilient nature of the labour market, and amid increased upside inflation risks stemming from the likely trade policies of President-elect Trump’s Administration,” Brown added. “The key question now is whether the FOMC’s ‘skip’ turns into a more prolonged ‘pause.’ While further rate cuts, back towards neutral, remain likely this year, albeit at a much slower and more cautious pace than seen in 2024. More data along the lines of what has been received in early 2025 will only serve to heighten expectations that Powell & Co. will remain on the sidelines for the time being, at least for the first quarter of 2025.”
Looking at the components of the index, the report noted that rising energy prices were a significant driver of inflation last month. The energy index rose 2.6%, accounting for over 40% of the monthly headline inflation. The gasoline index increased 4.4% over the month.
The core data showed broad-based increases in shelter costs, airline fares, used cars and trucks, new vehicles, motor vehicle insurance, and medical care.
