Weak Inflation Data Push Gold Prices To Session Highs
(Kitco News)- Gold prices pushed to session highs after U.S.inflation data came in weaker than expected.
Wednesday,the U.S. Labor Department said its U.S. Consumer Price Index fell 0.1% in March,after increasing 0.2% in February. The drop was weaker than expected as consensusforecasts were calling for an unchanged reading.
Thedecrease in inflation pressures did not have a major impact on the annual data.For the year CPI rise 2.4%, its highest read in a year.
Monthlycore inflation, which strips out volatile food and energy costs, rose 0.2%,following a 0.2% increase in February. The data was in line with economistexpectations.
Annualcore inflation jumped to 2.1% last month, its highest level in more than ayear.
Theweak inflation data was positive for the gold market, which is also benefitingfrom rising geopolitical tension. Ahead of the report gold was trading at a two-week high after President Donald Trump issued a warning on Twitter, of imminent military action in Syria. June Comex gold futures last traded at$1,258.20 an ounce, up almost 1% on the day.
Whilegold is sees as an inflation hedge, analysts have said that weak pricespressure could help gold because it will keep the Federal Reserve fromaggressively raising interest rates.
Marketswill get a better read on the opinions among central bankers later this afternoonwhen the minutes from the March monetary policy will be released.
Althoughcore CPI has now pushed above 2% for the first time in more than a year,economists don’t think it will prompt the Fed to move any quicker than previousexpected.
“Annual rates of both headline and core CPI moved higher partly dueto a sharp drop in telecomms prices a year ago falling out of the annualcalculation,” said Andrew Grantham, senior economist from CIBC World Markets. “Eventhough core CPI is now back above 2%, it remains below the average level seenprior to last Spring's sharp deceleration, and would still leave core PCEtracking a little below 2%. As such, we see no reason to change our forecastfor only 2 more hikes by the Fed throughout the remainder of the year.”
Looking at the data, the sharp drop inheadline inflation was due to weaker gas prices. The report said that thegasoline index dropped 4.9% last month.
“A decline in the gasoline index more than outweighed increases in the indexes for shelter, medical care, and food to result in the slight seasonally adjusted decline in the all items index,” the report said.
By Neils ChristensenFor Kitco News
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