Gold Nears $4,000 After 1.1% Drop as Markets Await U.S. Inflation Data
Key Facts
Spot gold fell 1.1% to $4,022.19 an ounce by 08:55 GMT on October 29, while U.S. gold futures for December delivery fell 0.4% to $4,035, Reuters reported. The moves came as investors assessed signals from the Federal Reserve and awaited U.S. inflation data. In closing data recorded by EL7, XAU/USD stood at about $4,017.01 an ounce on October 29, compared with $4,067.29 the previous day. The close remained above $4,000, although prices came close to that level during the session. Reuters said bullion was on track for a second consecutive monthly decline.
On October 28, the Federal Reserve kept its target range for the federal funds rate at 3.75% to 4%, in a decision approved by 10 votes to two. Lisa D. Cook and Beth M. Hammack dissented, preferring to raise the target range by a quarter percentage point. The committee’s statement said economic activity was expanding at a solid pace and inflation remained elevated. The hold came as price pressures remained central to assessments of the monetary policy outlook. Markets were awaiting personal consumption expenditures data, the Federal Reserve’s preferred inflation measure, scheduled for release at 12:30 GMT on October 29, Reuters reported.
Data from the U.S. Bureau of Economic Analysis showed that the personal consumption expenditures price index rose 0.5% in September from the previous month and 3.6% year over year. The core index, which excludes food and energy, rose 0.3% monthly and 3.1% annually. The consumer price index also increased 0.6% in September, after a 0.4% rise in August, and was up 3.7% in the 12 months through September, according to the Bureau of Labor Statistics. A 9.1% increase in the gasoline index in September accounted for more than half of the monthly rise in the all-items consumer price index. These readings keep inflation at the center of the debate over interest rates as markets watch price data to gauge the direction of monetary policy.
On growth, U.S. real gross domestic product expanded at an annual rate of 3.4% in the third quarter, after growing 2.2% in the second quarter, according to the Bureau of Economic Analysis’ advance estimate. The bureau attributed the acceleration mainly to faster investment growth and a rebound in government spending. This was partly offset by a decline in exports. The bureau is scheduled to release its second estimate of third-quarter GDP on November 25. The next report will give investors an updated reading of economic performance following the advance estimate.
Kevin Warsh said the “overwhelming consensus” among Federal Reserve officials is that what they have done “has started to have some results,” noting that credit conditions “have tightened for some businesses and households,” the Associated Press reported. The agency said most economists still expect a quarter-percentage-point rate increase at the next meeting on December 8 and 9. It also reported that investors had priced in a probability of about 85% of a rate increase at that meeting. That expectation puts the October decision and inflation and growth data in the context of the market’s wait for the next move. The December meeting marks the next stage in the rate decision path after the awaited economic data are released.
September’s backdrop shows gold ended the month at $4,176 an ounce, down 8.5% from August, according to the World Gold Council. The council linked the decline to rising U.S. Treasury yields and the dollar, as well as a reduction in futures positioning. The 10-year Treasury yield rose 53 basis points to 5.3%, while the dollar index gained 2%. Even so, global gold exchange-traded funds recorded inflows of $10 billion, equivalent to 67 tonnes, during September. These flows provide a parallel indicator of price movements in a month when gold fell and yields and the dollar rose.
The upcoming economic calendar includes the U.S. October employment report, scheduled for release on November 6, followed by the consumer price index for the same month on November 10, according to the Bureau of Labor Statistics schedule. This follows the personal consumption expenditures report expected on October 29, which investors watched for further inflation signals. The second estimate of third-quarter growth is due on November 25. After these data releases, the Federal Reserve will hold its next meeting on December 8 and 9. Economists’ and investors’ expectations, as reported by the Associated Press, leaned toward a quarter-point increase at that meeting, with a probability of about 85% priced in.