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Gold prices struggle as U.S. consumers live off credit in October

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(Kitco News) - The gold market is seeing little reaction to the latest economic data showing U.S. consumers depended heavily on credit as government assistance wound down last month.

The Bureau of Economic Analysis said that personal income dropped 0.7% in October, significantly missing expectations. Economists were expecting to see an unchanged reading in income.

Meanwhile, the report said that personal spending increased 0.5%, significantly beating expectations. Economists were expecting to see a 0.4% increase.

“The decrease in personal income in October was led by a decrease in government social benefits,” the report said.

“The surprise in this report is the drop in income, which doesn't bode well for the months ahead,” said Adam Button, chief currency strategist at Forexlive.com.

The gold market is seeing little reaction to the dismal income data and continues to struggle to find new bullish momentum. December gold futures last traded at $1,809.50 an ounce up 0.27% on the day.

The argument to hold gold as an inflation hedge is also taking a hit. The report noted that headline and core inflation pressures were unchanged in October.

For the year, the core Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation measure, rose 1.4%, down from September’s annual rise of 1.6%.

Although at first blush, the latest economic report seems bearish for gold. Analysts have said that it continues to support gold’s long-term fundamentals. Weak inflation pressures means the Federal Reserve has significant room to launch new stimulus measures, analysts have said.

At the same time, growing personal debt along with massive government debt will force the Federal Reserve to maintain low interest rates for the foreseeable future, analysts have said.

Analysts have also said that either the Federal Reserve or the U.S. government will have to announce new stimulus measures to support the beleaguered economy.

“The need for a second round of fiscal stimulus remains urgent as those in the most impacted sectors of the economy have the least to fall back on,” said Katherine Judge, senior economist at CIBC World Markets.

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