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Gold price unable to fund any bullish momentum as U.S. CPI rises 8.3% for the year
By: Neils Christensen | May 11, 2022

Gold prices are struggling to hold in positive territory, seeing little bullish momentum following a stronger-than-expected rise in U.S. consumer prices.

Wednesday, the U.S. Labor Department said its Consumer Price Index rose 0.3% in April, after a 1.2% rise in March. The data beat consensus forecasts as economists were forecasting a 02% rise.

The report said that headline inflation rose 8.3% for the year, coming in hotter than expected. Economists were looking for the data to show a sharp drop from March's peak with a rise of 8.1%. March inflation rose to 8.5%, its highest level in 40 years.

Meanwhile, core CPI, which strips out food and energy costs, increased 0.6% last month, up from a 0.3% increase in March. The data was also higher than expected. For the year, core CPI is up 6.2%.

The gold market is not seeing much reaction to the latest inflation data. The market is trying to find some support after falling through $1,850 an ounce on Tuesday, hitting a three-month low. June gold futures last traded at $1,843.20 an ounce, relatively unchanged on the day.

Gold is stuck in neutral following hotter than expected inflation data. U.S. CPI rose 8.3% for the year in April; economists were expecting to see 8.1%. June gold futures last traded at $1,839.50 an ounce, roughly unchanged on the day.

According to some analysts, gold is struggling following the CPI data because it supports the Federal Reserve’s aggressive plans to tighten interest rates. the U.S. central bank has signed that it could raise interest rates by 50-basis points at the next two meetings.

"Overall, the April data will probably strengthen the Fed’s resolve to continue hiking rates by 50bp at the next couple of meetings – and could lead to renewed speculation about a 75bp hike or an inter-meeting move," said Andrew Hunter, senior U.S. economist at Capital Economics.

Some economists and market analysts have said that the latest inflation supports the idea that inflation has peaked; however, the question is just how sticky inflation will be at elevated levels.

"We're in the process of rolling over from extremely high y/y inflation, but the shape of that curve is in question. Will it be a swift return to 2% inflation or a long, slow process," said Adam Button, chief currency strategist at Forexlive.com.

Rising food and energy prices continue to be significant contributors to rising consumer prices. The report said the food index rose 1% last month. Looking at energy prices, the report noted that the gasoline index fell 6.1% in April; however, natural gas prices and electricity costs rose.

For the year, energy prices are up 3.0.3%; at the same time, food prices are up 9.4%.

Some analysts expect that energy prices will continue to push inflation higher. Average gas prices in the U.S. are currently at record highs.

Katherine Judge, senior economist at CIBC, said that while inflation may have peaked, it could prove to be stickier than expected.

“Looking beyond April, base effects will help annual inflation continue to decelerate in the near term, but that will be limited by gas prices, which are heading higher again, and supply disruptions resulting from lockdowns in China, in combination with the tightening in the labor market and higher shelter prices,” she said.

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