Gold prices maintain support above $ 1,800 an ounce after a sharp 0.9% rise in US inflation

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(Kitco News) – The gold market maintains its gains and support above $ 1,800 an ounce as inflation pressures in the United States rise significantly in June.

On Tuesday, the US Department of Labor said its US consumer price index rose 0.9% in June, after rising 0.6% in May. The data far exceeded consensus forecasts, with economists forecasting a 0.5% increase.

“This is the largest one-month change since June 2008, when the index rose 1.0%,” the report said.

For the year, the report says headline inflation rose 5.4%.

Meanwhile, the core CPI, which excludes food and energy costs, rose 0.9% in June, from 0.7% in May. Economists expected an increase of 0.4%.

Core inflation continues to experience unprecedented growth. The report says annual inflation rose 4.5%, the largest 12-month increase since the period ending in November 1991.

Warmer-than-expected inflation data shows some support for gold prices. August gold futures traded for the last time at $ 1,810.60 an ounce, up 0.27% on the day.

Market analysts note that mounting price pressures are expected to continue to support gold prices as the threat of inflation pushes down real yields. Last week, real yields fell below -1% for the first time since February.

However, some analysts note that gold could also struggle in the near term, as rising inflation could force the Federal Reserve to tighten interest rates sooner than expected. At the Federal Reserve’s monetary policy meeting in June, the central bank signaled in its updated plans that it could raise interest rates in 2023.

Some economists expect the US central bank to announce a cut to its monthly bond buying program as early as August.

Katherine Judge, senior economist at CIB, said her company sees potential for higher interest rates as early as the second half of 2022.

“Another upside surprise regarding inflation suggests more widespread impacts of supply chain issues and raises further questions about how quickly these factors will subside amid high demand,” he said. she declared. “Ultimately, with the economic slack set to be eliminated later this year, pricing pressures are expected to be firm enough through 2022 to see Fed rates rise in the second half of this year.

However, many economists still expect the growing threat of inflation to be temporary. Looking at the latest CPI data, used car prices rose 10.5% for the year, accounting for about a third of the annual increase in the CPI.

Looking at the other components of the report, the food index rose 0.8% in June, a larger increase than the 0.4% increase reported in May. Meanwhile, the energy index rose 1.5% in June, while the gasoline index rose 2.5% during the month.

Andrew Hunter, senior US economist at Capital Economics, said the rise in inflation appears to be more permanent than expected.

“While the upward pressure on prices due to shortages of goods and the reopening should eventually subside, we expect that a sustained acceleration in wage growth will only lead to a slight drop in core inflation. From an average of just over 3% this year, we expect core CPI inflation to be 2.8% next year, much more than what Fed officials seem to be anticipating, ”he said.