The cooling of the core PCE in the United States in October increased the Federal Reserve's bets on cutting interest rates in advance, and gold fell sharply by $5 in the short term

Inflation continued to cool in October. The latest data released on Thursday (Nov 30) showed that the personal consumption expenditure (PCE) index rose 3% year-on-year for the month, down from 3.4% in September and in line with expectations. "Core" personal consumption expenditure, which excludes volatile food and energy categories, rose 3.5%, down from 3.7% last month and in line with expectations of economists surveyed by Bloomberg.

U.S. consumer spending rose modestly in October, with PCE registering its smallest annual rate since early 2021. Signs of cooling demand could further strengthen expectations that the Federal Reserve's rate hike has ended.

The latest data released on Thursday (Nov 30) showed that the personal consumption expenditure (PCE) index rose 3% year-on-year for the month, down from 3.4% in September and in line with expectations. "Core" personal consumption expenditure, which excludes volatile food and energy categories, rose 3.5%, down from 3.7% last month and in line with expectations of economists polled by Bloomberg.

Core PCE rose 0.2% month-on-month in October, down from 0.3% in September.

The core PCE is the most frequently cited inflation measure by Federal Reserve Chairperson Jerome Powell and is therefore closely watched by investors. Ahead of the report, the market increased bets that the Federal Reserve may not raise interest rates again.

The slowdown in consumer spending reflects the impact of rising interest rates and the depletion of excess savings by low-income households. While wages remain high, growth has slowed from earlier this year as the labor market has moderated. American households may be reluctant to spend and save more, fearing the economy could slip into recession in early 2024. Economists' forecasts for fourth-quarter growth are mostly below 2 percent. Most expect the economy to enter a period of very slow growth, avoiding a full-blown recession.

As of Wednesday, the market was pricing in a 78% chance of a rate cut at the end of the Fed's May meeting. A month ago, the market was pricing in a 41% chance of a rate cut over the same period, according to the CME FedWatch tool.

market reaction

After the release of PCE data, spot gold fell by $5 in the short term, and is now reported at $2037.97/ounce.

(30-Minute chart of spot gold, source:)

The expected inflation did not have much impact on the gold market, as gold prices remained below the key resistance level of $2,050 an ounce.

The dollar index expanded its gains, making gold more expensive for holders of other currencies.

Michael Hewson, chief market analyst at CMC Markets, said: "The downside risk for gold right now is that the decline in the pace of inflation starts to slow and as inflation becomes more sticky, the rate cut bet will also decrease."

Mr. Hewson added: "Today's personal consumption expenditure data is unlikely to change the view that the Fed is sitting still again in December, with the focus likely to shift to next week's non-farm payrolls report."

Federal Reserve Chairperson Jerome Powell will also speak on Friday.

Federal Reserve officials this week hinted at the possibility of interest rate cuts in the coming months and predicted that economic growth would slow and inflation would slow further, sending the 10-year Treasury yield to a two-and-a-half-month low.

Technical analysis:

From a technical standpoint, gold futures bulls have a solid overall near-term technical advantage. Prices are in a six-week uptrend on the daily chart. The next upside price target for bulls is a solid resistance level at $2,100.00. The next near-term downside price target for bears is below a solid technical support level at $2,000.00.

(Source: Kitco)

The first resistance level is the overnight high of $2,067.40, followed by the week's high of $2,072.70.

The first support level was $2,050.00, followed by the week's low of $2,030.00.