Gold prices are slightly lower this morning thus far, and the yellow metal is set to finish off the week on a weaker note. Stocks and crude oil are lower, as well, while the dollar index is moving sharply higher.
The news this morning is the increase in core inflation. The Bureau of Labor and Statistics reported that core inflation for April rose .3 percent, while consensus estimates were looking for a rise of .2 percent.
It should be noted, however, that the headline inflation rate, including food and energy, saw another drop with a reading of -.2 percent on an annualized basis. The annualized core inflation rate was steady at 1.8 percent.
Gold’s initial reaction to the data may be one of hesitation, as higher inflation may pave the way for the Fed to begin hiking rates…
While increasing inflation can be a positive for the gold market, inflation remains well below the Fed’s targets. Rapidly accelerating inflation may cause buying in gold and precious metals, but such an increase is not yet being seen. The reading today is still relatively benign, and current inflation rates may not be enough of a catalyst to drive gold higher. On the other hand, the prospect of a rate hike could possibly weigh on gold in the near-term, and the metal may be remain contained within its recent trading range.
Today’s data will certainly add to the ongoing debate over the timing of the first rate hike by the central bank. While a June rate hike is off the table, many believe that September will likely bring the first hike from the Fed. Some analysts are now even talking about the possibility of a hike in July. Of course, this will likely depend on what inflation data looks like in June, as well as the overall data stream set to be released in the coming weeks.
The dollar index is moving sharply higher following the data, and the greenback may be in the process of resuming its uptrend. Should this prove to be the case, the gold bulls may have a tough road ahead as dollar strength may limit buying in the precious metal.
While gold has held the lows of its recent range, the bulls have yet to make a convincing upside breakout. Data will be watched very closely in the coming weeks, as well as the dollar index. The $1180 area on the downside and this week’s highs around $1228 remain key near-term price levels.
