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Gold prices holding steady as US PCE inflation rises 0.2% in July, up 4.2% for the year

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(Kitco News) - The gold market is holding on to nearly all of its gains so far this week as it sees little reaction to stable inflation pressures, potentially signaling that the U.S. central bank can end its tightening cycle.

Thursday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to June’s increase of 0.2%. The inflation rose in line with economists' expectations.

Meanwhile, inflation in the last 12 months rose 4.2%, up a tick compared to June’s increase of 4.1%. Annual inflation also rose in line with expectation. Looking at the broader trend, inflation remains stubbornly high, more than double the Federal Reserve's target of 2%.

The gold market is not seeing any significant moves in reaction to the latest inflation data. Prices are holding near a three-week high following weaker employment numbers on Tuesday and Wednesday. December gold futures last traded at $1,972.40 an ounce, roughly unchanged on the day.

Elevated inflation pressures could force the Federal Reserve to maintain a hawkish bias; however, many anlaysts say that there is a growing risk that the central bank will be force to end its tightening cycle before inflation is bought down to the target range. Market expectations regarding Fed rate hikes remain relatively unchanged following the PCE data. Markets see the Federal Reserve on hold next month and see a 50/50 chance of a 25 basis point move in November.

The data shows that cracks are starting to appear in the economy as personal income came in weaker than expcted. The report said that personal income rose 0.2% last monh; economists were expecting to see a 0.3% rise. At the same time personal spending increased 0.8%, beating expectations. Consensus forecasts called for a increase of 0.7%.

While consumer spending remains solid, some analysts have noted that it's not sustainable. In a recent interview with Kitco News, Adrian Day, president of Adrian Day Asset Management, said that in one year consumers have burned through their savings and are now holding record levels of debt. He added that the longer interest rates remain at elevated levels, the more likely it is consumers will be forced to default on their debt.

Earlier this month, the New York Federal Reserve reported that consumer debt increased to $1 trillion between April and June.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.