According to the US Commerce Department report on Friday, the core personal consumption expenditure (Core PCE) - a favorite inflation measure of the US Federal Reserve (FED), excluding energy and commodity prices, increased by 0.3% last month, higher than the increase of 0.2% in December. Core inflation in the past 12 months increased by 2.6%, down slightly compared to December but still in line with forecasts.
The gold market reacted quite weakly to the latest inflation data as investors reduced their betting on rising prices. Last night's spot gold price was trading around 2,855 USD/ounce, down 0.73% on the day.
The report also shows that US consumers are starting to spend less, which could affect economic growth. Personal spending fell 0.2% last month, while analysts expected a 0.2% increase. However, the negative impact was somewhat offset when the December spending data was adjusted up to 0.8%.
At the same time, consumers tend to save more due to concerns about the economy. The report showed that personal income increased by 0.9% last month, much higher than the analysts' forecast of 0.4%.
Some economic experts say this data continues to put the FED in a difficult position as the economy shows signs of weakening but inflation remains high.
Commodity experts say this is an ideal environment for gold because this precious metal is considered a hedge against economic instability. At the same time, higher inflationary pressures could actually reduce interest rates, reducing the opportunity cost of gold - a non-interest-bearing asset.
Thomas Ryan, North American economist at Capital Economics, commented: Core inflation at 2.6% is still too high for the Feds target. With rising inflationary pressures due to tariff policies, we still maintain the view that the Fed will not cut interest rates this year. If the sharp decline in consumer spending in January is a sign of a real weakening of consumers, the Fed's task will become more complicated.
However, part of the decline may be due to unusually harsh winter weather.
Some commodity analysts also believe that with inflation below 3% per year, the FED may focus more on supporting the economy and the labor market, rather than controlling consumer prices, which could lead to the possibility of more interest rate cuts in the future.
Jim Wyckoff - senior analyst of Kitco assessed that technically, investors betting on the upward trend of gold delivery in April are still holding the advantage in the short term, but the increase has slowed down on the daily chart.
To continue pushing prices up, buyers need to close gold prices above the important resistance level of $2,974/ounce. Meanwhile, the sellers are aiming to pull prices down to the important support zone at 2,800 USD/ounce.
Currently, the closest hold on gold is at $2,896.1 an ounce, followed by $2,900 an ounce, while the support levels are determined at $2,850 an ounce and $2,825 an ounce.
According to Jim Wyckoff, the market strength index is at 7.5, showing that buyers are still dominating, but downward pressure is also increasing.
See more news related to gold prices HERE...
