Gold price trying to hold support around $2,350 as U.S. CPI rises 0.4% in March, up 3.5% for the year

The Consumer Price Index (CPI) rose 0.4% last month after February’s 0.4% increase, the U.S. Bureau of Labor Statistics said on Wednesday. The latest inflation data was higher than expected as economists looked for a 0.3% increase.

The report said that in the last 12 months, headline inflation rose 3.5%, also coming in above expectations. Consensus forecasts were calling for an increase of 3.4%.

At the same time, inflation continues to embed itself in producer prices. Core CPI, which strips out volatile food and energy prices, increased 0.4%, coming in hotter than expected.

The report said that annual core inflation rose 3.8%, unchanged from February’s reading.

The gold market is struggling as the latest inflation data is adding to the technical selling pressure. June gold futures last traded at $2,348.10 an ounce, down 0.59% on the day.

The report said that shelter costs and higher gasoline prices were the two biggest factors in higher inflation last month. “Combined, these two indexes contributed over half of the monthly increase in the index for all items,” the report said.

The energy index rose 1.1% last month; meanwhile, the food index rose 0.1%.

According to some economists, the latest inflation data could be the final straw that forces the Federal Reserve to delay the start of its easing cycle. The CME FedWatch Tool showed expectations for a June rate cut have dropped sharply to 28%; Tuesday, markets saw a 57% chance of a cut.

“Add in the strong jobs market as illustrated by Friday’s Non-Farm Payroll report, together with a clutch of strong economic data releases, and the argument for cutting rates this year isn’t too strong,” said David Morrison, Senior Market Analyst at Trade Nation.

Paul Ashworth, Chief North American Economist at Capital Economics said in a note that the latest inflation pretty much kills off hopes of a June rate cut.

Although the gold market is seeing some technical selling pressure, some analysts note that the precious metal remains well supported as the economy won’t be able to sustain higher interest rates as government debt continues to grow.

In a social media post, Tavi Costa, market strategist at Crescat Capital, noted that if interest rates remain steady, service payments on government debt will rise to $1.6 trillion by December. However, even if the Fed cuts 150 basis points, interest payment costs would rise at a slightly slower pace to $1.2 trillion.

“I cannot stress enough how favorable this environment is likely to be for hard assets,” he said. “Severe debt imbalances will inevitably lead central banks to resort to financial repression, compelling policymakers to let inflation rates remain higher for longer.”

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com