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Gold prices down but largely ignore in-line 3.5% rise in PCE core inflation

Inflation pressures rising in line with expectations are not having much impact on the gold market as prices remain below critical resistance at $2,050 an ounce.

The U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to September’s increase of 0.3%. The data provided no surprise for markets, rising in line with consensus estimates.

For the year, core inflation remains well above the Federal Reserve’s 2% target, rising 3.5% in the last 12 months as of October. Inflation has dropped from September’s increase of 3.7%.

The latest inflation data is not having much impact on gold prices, as the market sees some profit taking rallying through $2,000 an ounce at the start of the week. December gold futures last traded at $2,039.90 an ounce, down 0.35% on the day.

The latest inflation data has not had much impact on interest rate expectations as markets continue to aggressively price in a rate cut in the first quarter of next year. Markets see a nearly 50/50 chance of the Federal Reserve cutting rates in March. Markets are more confident that the first rate cut will come in May or June.

Andrew Hunter, deputy chief economist at Capital Economics, said that he expects inflation to continue to weaken giving the central bank room to cut rates early next year.

“We continue to see a good chance that the Fed will begin cutting rates in March next year, a little sooner than markets are expecting. And with a growing body of evidence that inflation will be close to the 2% target by mid-2024, we also think markets still haven’t gone far enough in pricing in rate cuts over the next 18 months,” he said.

Along with muted inflation, the report also noted that consumer income and spending rose in line with expectations, increasing 0.2% respectively in October.

Source: Neils Christensen Kitco