(Kitco News) - The gold market is trading in positive territory above $3,640 per ounce after U.S. inflation pressures rose more than expected last month.
The Consumer Price Index (CPI) rose by 0.4% last month after July’s 0.2% increase, the U.S. Bureau of Labor Statistics announced on Thursday. The inflation data was hotter than expected, as economists were looking for a 0.3% increase.
The report noted that headline inflation rose by 2.9% over the last 12 months, in line with economists’ expectations, following the 2.7% reported in July.
Core CPI, which strips out volatile food and energy prices, increased by 0.3% last month, in line with expectations and following July’s 0.3% rise.
The report stated that annual core inflation rose by 3.1% last month. Economists were expecting to see an increase of 3.1%, the same as July’s print.
The gold market shot higher and turned positive on the session following the latest inflation data. Spot gold last traded at $3,641.28 per ounce, up 0.02% on the day.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, told Kitco News that "the last bolt on the gate has fallen out and the rate-cutting horse is about to leave the barn."
"It’s surprising to see how quickly the narrative has shifted from before last week’s jobs report, from whether or not there will be a cut in September, to how many cuts we will see after there is definitely a cut in September," he said.
"The Fed’s path is clear in the short run, but over the medium term, the fact that core inflation is running quite a bit higher on a month-over-month basis is going to complicate matters, and the market knows this," Zaccarelli said. "Watch the market reaction today, because all things being equal, a rate cut should be very bullish for the market, but the 0.4% month-over-month inflation rate is much too high for a sustained rate-cutting cycle, and it will now be an issue of how many more times can the Fed cut if inflation does not head toward their 2.0% year-over-year target."
U.S. inflation has become a complicated issue for the gold market. Elevated consumer prices forced the Federal Reserve to maintain a neutral monetary policy, keeping rates unchanged through 2025, which increases the opportunity costs of holding gold. But high inflation is also increasing the risks that the U.S. could fall into a recession, which is supporting safe-haven demand for the precious metal.
However, a weakening labor market now has economists expecting the Fed to resume rate cuts this month despite sticky inflation in order to fulfill the other half of their mandate.
