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Market Analysis
Gold Prices Up 1% After US PCE Data Softer than Expected
Gold rose 1% to the highest point in over two weeks after the Fed's preferred inflation gauge came in softer than expected.
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The core personal consumption expenditures (PCE) price index climbed 3.2% on an annual basis in November, lower than estimated. The headline PCE rate also fell last month, pushing gold and equity prices higher on Friday.
CPE Sees First Monthly Decine Since April 2022
The core PCE price index, the Fed’s preferred inflation gauge that disregards food and energy prices, rose 3.2% year-over-year in November, marking a softer increase than the 3.3% expected by economists and down from the 3.5% in October. Month-on-month, this inflation measure rose 0.1%, in line with estimates.
On a six-month basis, core PCE climbed 1.9%, suggesting that the Fed’s ‘higher for longer’ interest rate plan is successfully slowing inflation. As such, analysts believe the central bank is on track to bring it down toward the 2% target.
“Adding in the further sharp slowdown in rent inflation still in the pipeline, it’s hard to see any credible reason why the annual inflation rate won’t also return to the 2% target over the coming months.”
– wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics.
The headline PCE, which includes food and energy costs, fell 0.1% on the month and rose just 2.6% from a year ago. This print marks a sharp decline from the 7% peak in mid-2022. It was also the first monthly decline since April 2022.
Most importantly, the latest PCE report marks the latest development, showing that the Fed no longer needs to raise interest rates. The central bank said at its meeting last week that it expects to implement rate reductions totaling 0.75 percentage points in 2024. Markets believe the first cut may come as soon as March.
The consumer price index (CPI) also fell to 3.1% in November amid waning energy prices.
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Spot Gold Rises 1%, Sets Sight at $2,070
Unsurprisingly, another better-than-expected inflation data report boded well for many highly-traded assets, including gold.
Spot gold prices were up 1% at $2,066 at the time of writing, the highest point since December 4. As a result of this ascent, the bullion broke above the crucial resistance at $2,060 and is anticipated to continue its upward momentum towards $2,070 amid deepening expectations of a dovish pivot.
US stocks also increased at the market open, with the S&P 500 climbing over 0.3% to 4763. Bitcoin was down 1% at $43,431, while the 10-year Treasury bond yield fell to 3.87%.
With increasing indications that inflationary pressures are easing, how do you think that gold will perform in 2024? Let us know in the comments below.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
