(Kitco News) - Gold prices continue to hold support above $3,300 an ounce, despite some renewed selling pressure. Moderating inflation is having little impact on prices.
The Core Personal Consumption Expenditures (PCE) index—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge—rose 0.1% in April, following an unchanged reading in March, the U.S. Department of Commerce reported Wednesday. Consumer prices increased in line with consensus estimates.
Over the past 12 months, core inflation rose by 2.5%, down from March’s revised annual increase of 2.7%. Annual inflation also aligned with economists' expectations.
Gold is not reacting strongly to the latest inflation data. Spot gold last traded at $3,301 an ounce, down 0.49% on the day. Inflation has been a double-edged sword for gold in recent years.
Higher inflation has forced the Federal Reserve to maintain a strong, neutral monetary policy stance this year; however, it has also pushed real yields lower, which is positive for gold as a non-yielding asset.
At the same time, lower inflation gives the Federal Reserve room to cut rates, but the resulting support for economic growth could prompt investors to rotate out of defensive assets like gold and into equities.
Meanwhile, consumption data paint a mixed picture of the health of the economy. The report noted that U.S. consumers saw another healthy increase in earnings, with incomes rising 0.8% last month, following a 0.5% increase in March. Economists had expected a 0.3% rise.
However, consumers appear to be saving more, as personal spending increased by only 0.2%, in line with expectations.
Jamie Cox, Managing Partner at Harris Financial Group, pointed out that the PCE report confirms continued disinflation, despite widespread skepticism that disinflation is possible in the current environment.
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said that muted inflation continues to be overshadowed by U.S. trade policy and tariffs.
“At some point, the tariff uncertainty has to be addressed—and if it can be done quickly enough before damage is done to the economy, then there can be a resumption of the bull market and we can return to all-time highs. However, if it takes too long to get clarity and the economy begins to stall, the Fed will have no choice but to cut rates aggressively. So, for those looking for rate cuts, be careful what you wish for,” he said.
Jeffrey Roach, Chief Economist at LPL Financial, noted that the consumer saving rate rose to 4.9% last month—the highest in a year—as incomes grew faster than spending. He added that growth in real income is helping to support consumers as they navigate an uncertain economic environment.
“As long as the job market remains stable, the Fed has the luxury of remaining in 'wait and see' mode. We think there is upside risk to inflation, as many baseline forecasts cannot reasonably account for the fluid tariff policy,” he said.
