(Kitco News) - Cooling inflation pressures is helping the gold market hold solid gains above the critical psychological support/resistance level of around $2,050 an ounce.
Friday, The U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.1% last month, compared to October’s increase of 0.2%. The data was
slightly weaker than expected, as economists were looking for a 0.2% increase.
For the year, core PCE rose 3.2%, down from 3.4% reported in October. Annual inflation was also cooler than expected as consensus forecasts called for a 3.3% increase.
Annual inflation has dropped to its lowest level since March 2021.
The gold market was seeing solid bullish momentum ahead of the inflation data and continues to hold its overnight gains in initial reaction. Spot gold last traded at $2,059.60 an ounce, up 0.66% on the day.
The latest inflation data is not having much impact on interest rate expectations as markets still see a more than 80% chance of the Federal Reserve cutting interest rates in March.
However, according to some economists and market analysts, even with inflation falling, a rate cut in the first quarter of 2024 might be a little premature. Although core inflation has fallen sharply from its 2022 highs, it is still well above the central bank’s 2% target.
Some economists have noted that from current levels it becomes increasingly more difficult to bring inflation down.
The report also highlighted growing risks to the economy as personal spending increased 0.2% last month, compared to October’s increase of 0.2%. The spending data was slightly weaker than expected as economists forecasted a 0.3% increase.
At the same time, consumers’ paychecks are growing in line with expectations, rising 0.4% in November, up from 0.2% in October.
Andrew Hunter, deputy chief U.S. Economist at Capital Economics noted that annualized inflation in the last six months has increased at a pace of 1.9%. He added that it's only a matter of time before inflation falls to the Federal Reserve’s target.
“Although the overall core PCE inflation rate remains elevated at 3.2%, there is clear evidence that the post-pandemic spike in inflation is now over. We continue to expect the Fed to start cutting interest rates in March, and by a slightly more-than-consensus 175bp in total next year,” he said.
