(Kitco News) - The gold market could struggle to hold on to overnight gains as inflation pressures remain elevated, potentially forcing the Federal Reserve to maintain its neutral monetary policy stance.
The Consumer Price Index (CPI) rose by 0.3% in June, following a 0.1% increase in May, the U.S. Bureau of Labor Statistics announced on Tuesday. The inflation data was in line with economists’ expectations.
However, over the past 12 months, headline inflation climbed 2.7%, up from 2.4% in May. Annual inflation came in hotter than expected, with consensus forecasts predicting a 2.6% increase.
Core CPI, which excludes volatile food and energy prices, increased by 0.2% in June—cooler than expected. Economists had forecast a 0.3% rise in core consumer prices, according to consensus estimates.
The report also showed that annual core inflation rose to 2.9% in June, up from 2.8% in May. This was slightly better than expected, as economists were looking for a 3.0% print.
The gold market is struggling to find its footing in the initial reaction to the inflation data. Spot gold last traded at $3,348.83 an ounce, up 0.18% on the day.
While gold remains well supported around $3,300 an ounce, analysts have said that the precious metal needs a catalyst to break above $3,400 and retest April’s all-time highs. A potential rate cut is seen as the best catalyst.
Although a July rate cut has been completely priced out of the market, markets are still pricing in a move in September, even after the elevated inflation data.
Aaron Hill, Chief Analyst at FP Market, said that this is a difficult CPI report to trade and decipher as inflation continues to rise, but at a slower pace than expected.
“This is unlikely to do anything regarding the Fed’s upcoming meeting at the end of the month, with investors assigning about a 95% probability of a no-change decision,” he said.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, said that while inflation rose roughly in line with expectations, economic uncertainty remains elevated.
“If it’s true that inflation is staying in check, then the Fed can go ahead and cut interest rates – potentially as early as September – but if subsequent reports show a different story, then the Fed is going to have to stay on hold even longer,” said Zaccarelli.
Breaking down inflation, the report said that shelter costs were the primary factor behind higher consumer prices in June. Meanwhile, the energy index rose 0.9% last month as the gasoline index increased 1.0 %.
At the same time, the report said that costs for household furnishings and operations, medical care, recreation, apparel, and personal care all increased last month.
