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Gold Prices Remains Positive Following Muted Inflation Data

Kitco News

(Kitco News) - Gold prices are holding on to modest gains as inflation pressure remain muted in U.S.

Thursday, The U.S. Department of Commerce said that Personal Consumption Expenditures Index increased 0.2% in October, in line with expectations. For the year, the data showed that inflation increased by 2%, unchanged from September's reading

Core inflation, which strips out volatile food and energy prices and is the U.S. central bank's preferred inflation measures, increased 0.1% last month, missing expectations slightly.

Annual inflation increased by 1.8% last month, down slightly from September's reading of 1.9%. This is the lowest reading of the Federal Reserve's preferred inflation measure since February.

Gold prices are relatively unchanged in initial reaction to the latest inflation data, holding in positive territory. February gold futures last traded at $1,232.70 an ounce, up 0.24% on the day.

According to some economists, the tame inflation pressures could support the view that the Federal Reserve could be close to ending its tightening cycle after Federal Reserve Chair Jerome Powell said that rates are just below neutral levels.

"Traders and investors interpreted Powell's comments as meaning the Fed will likely raise interest rates slightly at its December meeting, but after that all bets are off. Prior to Powell's speech, the sense of the marketplace was that the Federal Reserve would continue on a gradual rate-hike course in 2019," said Jim Wyckoff, senior technical analyst at

"You have to believe that Powell had these numbers yesterday. Even if he didn't, his emphasis on data dependency is a reason to shift towards a pause," said Adam Button, senior currency strategist at

Although inflation pressures remain lackluster, consumers continued to spend as their income picked up. The report said that U.S. consumer spending in October increased by 0.6%, up from 0.4% reported in September. The data was slightly better than expected as consensus forecasts were calling for an increase of 0.4%.

Meanwhile, personal income increased 0.5% last month, up from September's increase of 0.2%. Economists were expecting to see an increase of 0.4%.

Avery Shenfeld, senior economist at CIBC World Markets, said that although the data supports a December rate hike, it also give the U.S. central bank more flexibility moving forward.

“On the inflation front, the news was softer than expected, with headline PCE prices at 2.0%, and a tame 0.1% rise in core prices leaving them below consensus at 1.8% on the year. That's not miles from the Fed's 2% target, but gives a bit of support to the market's view that the Fed will take things slower from here,” he said. “The solid growth indicator gives the Fed a green light for a December hike, but if they are looking to pare back their earlier dot-plot forecast for 2019, they can now point to a bit lower inflation as a reason to do so.”

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