(Kitco News) - The ongoing inflation threat does not appear to be going away and could prove to be a millstone weighing down the gold market, as the Federal Reserve has a solid reason to keep interest rates unchanged.
In the government’s delayed Personal Consumption Expenditures Index data, the core PCE index—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge—showed that consumer prices increased 0.2% in both October and November.
The data was delayed because of the record 43-day government shutdown through October.
The report said annual core inflation rose to 2.8% in November, up from the 2.7% reported for October.
Although inflation has not significantly escalated, it has come in slightly hotter than expected and remains well above the Federal Reserve’s target of 2%. Economists were forecasting an unchanged reading of 2.7%.
Meanwhile, headline inflation rose 0.5% in October and November, the report said.
Annual headline inflation increased to 2.7% in October and 2.8% in November.
The gold market is not seeing any major move in its initial reaction to the latest inflation data; however, some analysts note that downside risks are growing. Spot gold last traded at $4,832.70 an ounce, relatively flat on the day.
At the same time, some analysts expect inflation data and U.S. interest rates to remain secondary factors in the gold market, as the precious metal continues to serve as an important safe-haven hedge against persistent geopolitical turmoil.
Last month, Federal Reserve Chair Jerome Powell signaled that the central bank wants to take some time to gauge the health of the economy before renewing its easing cycle.
The latest inflation data comes a week before the central bank’s next monetary policy decision. Markets are expecting the Federal Reserve to keep the federal funds rate unchanged. According to the CME FedWatch Tool, markets are not pricing in the first rate cut of the year until June.
While inflation remains elevated, the report also noted that consumption remains relatively stable, even as income falls. Personal spending rose 0.4% in October and 0.5% in November, in line with expectations.
Personal income increased 0.1% in October and 0.3% in November; economists were expecting a 0.4% increase.
