Gold price trading in neutral territory following rising inflation, U.S. personal income grows 21.1% in March

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(Kitco News) -The gold market is seeing some modest bullish momentum as inflation pressures continue to rise due to the U.S. governments stimulus spending.

Friday, the Department of Commerce said that personal income in March expanded 21.1%, following February’s 7.1 drop. The data beat expectations as economists were expecting to see a 20.2% increase.

Although the personal income data was better than expected, economists note that its not a major shock to markets as the government started sending out $1,400 checks to adults as part of a $1.9 trillion stimulus package.

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“The estimate for March personal income and outlays was impacted by the continued government response to COVID-19. Economic impact payments associated with the American Rescue Plan Act of 2021 (which was enacted on March 11, 2021) were distributed in March,” the report said.

 Although consumers saw their income grow last month, they aren’t in a major hurry to spend it. The report said that personal consumption increased 4.2% last month, up from February’s 1% decline. Economists were expecting to see consumption grow 4.3%.

Some economist think that it’s only a matter of time that its only a matter of time before pent-up demand is unleased in the U.S., fueled by the high savings rate.

“Fiscal stimulus payments drove a one-time spike in income growth to 21.1%, leaving the savings rate at 27.6%, which will provide a catalyst for a further pickup in spending ahead as services continue to reopen,” Katherine Judge, senior economist at CIBC.

The gold prices are attracting some buying attention in initial reaction to the latest consumption data. June gold futures last traded at $1,769 an ounce, relatively unchanged on the day.

According to some analysts, the precious metal appears to reacting to rising inflation. The report said that the core Personal Consumption Expenditures (PCE) Index, which strips out volatile food and energy prices, rose 0.4% last month, up from the previous increase of 0.1%. Economists expecting to see an increase of 0.3%.

For the year core inflation is up 1.8%, up significantly from February’s reading of 1.4%. Headline inflation for the year increased 2.3%, up from the previous increase of 1.5%.

Market analysts have noted that gold remains an attractive inflation hedge. They have also said that rising inflation will keep real interest rates at historic levels for the foreseeable future, even if nominal bond yields rise due to improving economic conditions.

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