Gold Prices Ignore Weak Inflation Pressures as PCE Rises 1.7% In 2017
(Kitco News)- Gold pricesremain under pressure, seeing little reaction to muted inflation pressuresthrough 2017.
Monday, TheU.S. Department of Commerce said that Personal Consumption Expenditures Index,0.1% in December, in line with expectations. However, for the year, the datashowed that inflation increased by 1.7%, down from November's reading of 1.8%.
Coreinflation, which strips out volatile food and energy prices, increased 0.2%last month, also in line with expectations. However, the annual rate and theFederal Reserve's preferred inflation gauge was unchanged from November's levelof 1.5%. Inflation is still well below the central bank's 2% inflation target.
The goldmarket has seen some profit taking Monday as a result of a bounce in the U.S.dollar. The market has remained under pressure following the disappointing inflationdata. February gold futures last traded at $1,341.70 an ounce, down 0.77% onthe day.
Weakinflation pressures has been a growing concern among members of the FederalReserve. The minutes from the December showed that some members of the centralbank did not think it was not appropriate to raise interest rates as inflationremains persistently low.
“They judged that leaving the target range atits current level would better support an increase in inflation expectationsand thereby increase the likelihood that inflation will rise to 2 percent,” theDecember minutes said.
Many analysts have said thatthey remain bullish on gold prices through 2018 as they expect the U.S. centralbank will not be able to raise interest rates as aggressively as it isforecasting.
The muted inflation datacomes a day before the Federal Reserve kicks off its first two-day monetarypolicy meeting of the year. Investors are not expecting the central bank toraise interest rates Wednesday, however they have said that the statement couldset the tone for the rest of the year.
While inflation has remainedmuted through 2017, the year ended on a strong note for consumption as U.S.consumers spend the most last month in six years. The report said that personalspending increased 0.4%, only a slight tick lower than economists’ forecastsfor a 0.5% increase.
However, the annual rateshowed an increase of 3.1% in December, the largest increase since 2015.
While consumers are spending more, they are making onlyslight more money. The report said that personal income increased 0.4% lastmonth, beating expectations for an increase of 0.3%.
However, economists say that income is not keeping up withspending and consumers are dipping into their savings, which fell to a 12-yearlow.
“To some extent, thedecline can be explained by the surge in household net wealth, but it stilldoesn’t bode well for consumption growth this year,” said Paul Ashworth, chiefU.S. economist at Capital Economics.
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