(Kitco News) - Higher inflation pressures and disappointing consumption data are providing no support for the gold market, as prices trade near session lows, solidly below $3,300 an ounce.
The Commerce Department's core personal consumption expenditures (PCE) price index, which excludes volatile food and energy prices, rose 0.2% in May, following a 0.1% increase in April. The inflation figures came in hotter than expected, as economists had forecast a 0.1% rise.
Year-over-year, the Federal Reserve’s preferred inflation gauge increased by 2.7%, up from the previous annual rise of 2.5%. Annual inflation also came in stronger than expected; economists had projected a 2.6% increase.
Meanwhile, headline inflation rose 2.3% over the past 12 months, in line with expectations.
The gold market is showing little reaction to the rise in consumer prices, as its geopolitical safe-haven appeal continues to diminish. Spot gold last traded at $3,272 an ounce, down 1.64% on the day.
In addition to persistently elevated inflation, the report also highlighted weakening consumption, which poses a threat to economic activity. Personal income dropped 0.4% last month, a sharp decline from April’s 0.8% increase. The data came in weaker than expected; economists had forecast a 0.3% increase.
At the same time, personal spending declined 0.1% in May, down from the previous month’s 0.2% increase. Economists had anticipated a 0.1% rise.
According to some economists, the report underscores the growing threat of a stagflationary environment—characterized by rising consumer prices and slowing growth. However, commodity analysts note that such conditions may be ideal for gold.
Economists from Wells Fargo said that the PCE data shows that consumers are starting to feel the effects of President Donald Trump’s tariffs.
“The narrative that the economy can absorb tariffs without any meaningful pass-through to prices took a few hits today as well. First, to be clear, on a broad level it is still true that inflation progress remains broadly resilient,” the analysts said in a note. “Rather, what we mean is that in the underlying detail, we can already find undeniable evidence of tariff impact. While everyone is trying to figure out just how inflationary tariffs will be, the revised recent trend in spending tells us consumers may not be as willing to take prices today. Price fatigue is at last settling in.”
