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Gold price sees some selling pressure following 4.1% rise in core PCE Index

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(Kitco News) - Gold is seeing some selling pressure after the U.S. annual core Personal Consumption Expenditures price index came in line with expectations in October, rising 4.1%.

On a monthly basis, the core PCE price index was up 0.4% last month, the U.S. Department of Commerce said on Friday. Although core inflation rose in line with economic projections, prices pressures for the year are at their highest level since 1991.

The core inflation strips out volatile food and energy prices and is the U.S. central bank's preferred inflation measure.

The gold market has been able to hold in neutral territory through what has been a busy morning for economic data. December gold futures last traded at $1,781.80 an ounce, down 0.12% on the day.

According to economists and market analysts, the rising inflation threat continues to support gold prices.

While core inflation rose in line with expectations, headline PCE appears to be running hotter than economists forecast, rising 5.0% for the year. Consensus forecasts were calling for a 4.6% increase.

Headline inflation is being driven by rising food and energy costs. The report said that energy goods and services increased 30.2% annually. Meanwhile, food prices are up 4.8% for the year.

With the in-line inflation data, markets appear to be reacting to more robust consumption data. The report highlighted stronger than expected income and spending levels.

Personal spending rose 1.3% in October, up from 0.6% in September. Economists were expecting to see a 1.0% rise. At the same time, personal income rose 0.5% last month, up from September's 1.0% drop. Economists were looking for a 0.2% increase.

Economists noted that the income and spending growth bode well for economic activity heading into the year-end.

"While the outlook for spending on services ahead is clouded by the uptrend in new Covid cases lately, the fourth quarter is off to a stronger start than expected," said Katherine Judge, senior economist at CIBC.

Some economists have said that the latest inflation numbers could force the Federal Reserve to tighten interest rates faster than they anticipated. Markets are already pricing in the first-rate hike for June. The potential for higher interest rates will continue to weigh on gold.

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