(Kitco News) - The gold market is struggling to hold the line near $5,200 as investors continue to focus on stubborn inflation, which could force the Federal Reserve to maintain its neutral monetary policy longer than expected.
The Consumer Price Index (CPI) rose by 0.3% in February, following a 0.2% increase in January, the U.S. Bureau of Labor Statistics announced on Wednesday. The inflation numbers rose in line with economists’ expectations.
Annual inflation rose 2.4%, unchanged from January’s reading and also in line with expectations.
Inflation pressures remain above the Federal Reserve’s target of 2%. At the same time, many analysts are looking ahead and expect to see a sharp acceleration in inflation due to the joint U.S.-Israel military operations against Iran, which have created global supply chain bottlenecks, particularly in the oil market.
“The good news is that inflation didn’t come in higher than expected in this morning’s CPI report; however, this is backward-looking data from before the war in Iran began,” said Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management. “It is generally assumed – and we agree – that the Fed is going to be on hold for longer now, as they wait to see if inflation expectations rise and become embedded, or if everything will go back to where it was prior to the military operations in the Middle East.”
Core inflation, which strips out volatile food and energy prices, is also not accelerating. Core CPI rose 0.2%, following a 0.2% increase in January, in line with economists’ forecasts.
Annual core inflation rose 2.5% in February, holding steady for the third consecutive month.
The gold market is seeing some modest selling pressure in reaction to the latest inflation data. Spot gold last traded at $5,178.10 an ounce, down 0.24% on the day.
For the second consecutive month, rising shelter costs were the biggest contributor to inflation; the index for shelter rose 0.2% in February. Meanwhile, the food index rose 0.4%, and the energy index rose 0.6%.
