(Kitco News) - The gold market briefly pushed back to session highs above $3,750 an ounce as U.S. inflation pressures remain elevated but manageable, giving the Federal Reserve room to reduce interest rates next month.
The Core Personal Consumption Expenditures (PCE) index—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge—increased 0.2% in August, following July’s 0.3% increase, the U.S. Department of Commerce reported Friday. Inflation rose in line with expectations.
Over the past 12 months, core inflation rose by 2.95%, unchanged from last month’s reading and in line with economists’ expectations. While inflation pressures are rising, some Wall Street whisper numbers suggested that annual inflation was expected to be much worse. Some economists were looking for inflation to rise as high as 3.2%, which would have put the Federal Reserve in a difficult position as it has just restarted its easing cycle.
The gold market is managing to hold on to gains above $3,750 an ounce, but it continues to face a wall of resistance. Spot gold last traded at $3,751 an ounce, roughly unchanged on the day.
Meanwhile, headline PCE inflation rose 0.3% last month, also in line with expectations. Over the past 12 months, consumer prices have risen 2.6%.
Along with manageable inflation, the report noted that U.S. consumers are in relatively good shape as both spending and earnings increased more than expected last month.
The report showed that personal income increased 0.4% in August, following a 0.4% increase in July. According to consensus estimates, economists had been calling for a 0.3% increase.
At the same time, personal spending increased 0.6%, following a 0.5% increase in the previous month. Economists were looking for a 0.5% increase.
Eric Teal, Chief Investment Officer for Comerica Wealth Management, said that although inflation remains elevated, the U.S. economy remains resilient.
“The tariff absorption rate is high in many of the emerging markets, which explains how lower-end consumption has been able to power through the policy changes. If the absorption dynamics change as the tariffs become longer-lasting, then inflation will become a greater transmission mechanism for tariffs to be passed along to consumers. However, this has not been the case, and economic growth and consumer spending has demonstrated resiliency,” he said in a note.
