(Kitco News) - The gold market continues to struggle to attract new bullish momentum as investors take more profits off the table and ignore economic data that point to growing stagflation risks.
The Core Personal Consumption Expenditures (PCE) index, which excludes volatile goods and energy prices and is the Federal Reserve’s preferred inflation gauge, increased by 0.3% last month compared to December’s increase of 0.2%, the U.S. Department of Commerce reported Friday. Consumer prices rose in line with consensus estimates.
Over the last 12 months, core inflation rose by 2.6%, down slightly from December’s reading and in line with expectations.
The gold market is not reacting significantly to the latest inflation data as investors reduce their bullish exposure. Spot gold futures were last traded at $2,855.60 an ounce, down 0.73% on the day.
The report also noted that consumers are starting to spend less, which is expected to weigh on economic activity. Personal spending fell by 0.2% last month, missing expectations; according to consensus forecasts, economists were looking for a 0.2% increase.
However, the initial sting of January’s decline was eased as December’s spending data was revised upward to a 0.8% increase.
At the same time, consumers appear to be building a war chest as fears over the economy rise. The report said that personal income jumped by 0.9% last month. Economists were expecting to see a 0.4% increase.
Some economists note that the data continues to highlight a difficult position for the Federal Reserve as the economy slows but inflation remains high. Commodity analysts have said that this is the perfect environment for gold as it is an attractive hedge against economic uncertainty. At the same time, higher inflation pressures will drive down real interest rates, lowering the precious metal’s opportunity costs as a nonyielding asset.
“The 2.6% annual core inflation rate is still too hot for the Fed’s liking and, with inflationary tariff measures pilling up, we stand by our view that rate cuts are off the table this year. The Fed’s job becomes trickier if January’s sharp decline in consumption was a sign of consumer strength buckling, but some of it can be attributed to unseasonably severe winter weather,” said Thomas Ryan, North America Economist at Capital Economics.
Some commodity analysts have also said that with annual inflation below 3%, the Federal Reserve could end up putting more focus on supporting the economy and the labor market rather than consumer prices, which would lead to more rate cuts.
