Gold holding firm but lacks direction as U.S. PCE Inflation rises 3.9% for the year
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(Kitco News) - Moderating U.S. inflation pressure is helping gold prices hold their ground, but it is not providing much new bullish momentum.
Friday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.1% last month, compared to July's increase of 0.2%. The inflation data was slightly cooler than expected, as economists were looking for a 0.2% increase.
Meanwhile, inflation in the last 12 months rose 3.9%, down from August's revised increase of 4.3%. Annual inflation fell in line with expectations. Although the Federal Reserve's preferred inflation gauge has dropped from its highs earlier in the year, it still remains stubbornly high and above the target of 2%.
While not seeing much selling pressure, the gold market continues to struggle for direction in reaction to the latest inflation data. December gold futures last traded at $1,886.60 an ounce, up 0.41% on the day.
Analysts note that persistently high inflation will force the Federal Reserve to maintain its aggressive monetary policy for longer than expected, which will continue to support rising bond yields and a stronger U.S. dollar.
Andrew Hunter, deputy chief U.S. economist at Capital Economics said in a note that he expects inflation to continue to moderate, which will prompt the Federal Reserve to official end its tightening cycle.
"Barring a dramatic re-acceleration in that monthly pace, which is unlikely given the cooling labour market and the sharp downturn in housing inflation, we continue to expect core PCE inflation fall well below the Fed’s 3.7% projection for the end of this year. That should help ensure that the Fed’s next move will be to start cutting rates again early next year," Hunter said.
Gold prices have dropped 2% this week as the yield on 10-year notes rose to a fresh 16-year high to 4.6%. Although yields have come off their recent highs, they remain elevated at 4.55%. At the same time, the U.S. dollar index pushed above 106 points even as it gave up some ground ahead of the weekend.
Although gold prices have struggled in the current environment, some analysts note that the precious metal remains fairly resilient. Looking at the technical picture, some analysts have noted initial support at $1,885, and if that breaks, the next area to watch is between $1,840 and $1,850.
Some analysts have said that gold has room to fall to $1,800 an ounce; however, the current weakness doesn't change the long-term bullish outlook as inflation remains high and the Federal Reserve's monetary policy threatens to push the economy into a recession.
Cracks are already starting to appear in the latest economic data. Along with the inflation, the Department of Commerce said that personal spending last month increased 0.4%, down from July's increase of 0.8%. The data was slightly weaker than expected, as economists were looking for a 0.5% increase.
At the same time, wages are held steady, increasing 0.4%, in line with consensus estimates.
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