- The price of gold has surged to nearly $2,060 following a softer core PCE inflation report for November.
- This soft inflation report has increased expectations for a rate cut by the Fed.
- The US Dollar Index is facing pressure due to rate cut expectations, as well as downwardly revised US Q3 GDP data and soft inflation data.
The price of gold (XAU/USD) is on the rise after the United States Bureau of Economic Analysis (BEA) reported a softer-than-expected core Personal Consumption Expenditure (PCE) price index for November. The monthly core PCE price index data grew at a slower pace of 0.1% compared to expectations and the previous reading of 0.2%. On an annual basis, the underlying inflation data decelerated to 3.2% versus a consensus of 3.3% and the previous print of 3.5%. In the December monetary policy statement, Fed policymakers projected that PCE inflation, their preferred inflation tool, would decelerate to 3.2% by the end of 2023.
A larger-than-expected decline in the core PCE data may increase expectations of early interest rate cuts by the Federal Reserve (Fed). Market participants have been betting in favor of early rate cuts by the Fed due to significant improvement in the Consumer Price Index (CPI) towards the 2% target.
Meanwhile, US Durable Goods Orders for November have outperformed investors’ expectations. Fresh orders for durable goods were up by 5.4% against expectations of 2.2%. In October, new orders for durable goods contracted by 5.1%.
Daily Digest Market Movers: Gold price extends upside on soft US core PCE data
- The price of gold has surpassed the crucial resistance of $2,060 following the soft US core PCE inflation report.
- The annual US core PCE data has softened to 3.2%, in line with the Fed’s projection in its Summary of Projections (SOP) delivered in last week’s monetary policy meeting where it kept interest rates unchanged.
- A steeper-than-expected decline in the underlying inflation report would push back expectations of a longer restrictive policy stance and bring the rate cut factor into the spotlight.
- Investors are pricing in that the Fed would announce its first rate cut in March after a year-long rate tightening period. A second cut would come in May.
- Expectations for lowering interest rates were boosted by commentary from Fed Chairman Jerome Powell, who discussed the necessity of avoiding the mistake of keeping interest rates too high.
- The majority of Fed policymakers are working to push back expectations of rate cuts, emphasizing the idea of keeping interest rates on a restrictive trajectory until price stability is achieved.
- Fed policymakers are reiterating that the strong resilience of the US economy could keep inflation fears persistent.
- On Thursday, the US Dollar came under pressure after a slight downgrade in the third quarter Gross Domestic Product (GDP) estimate.
- The US BEA downgraded Q3 growth rate in its revised estimate to 4.9% against expectations of 5.2%, weighing heavily on the US Dollar.
- A downwardly revised GDP indicates a cooling labor market and price pressures. However, economic growth in the US still surpasses that of other Group of Seven economies.
