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(Kitco News) – The gold market holds on its early morning gains almost 2% upwards, even if inflationary pressures remain quiet.
Friday, the Department of Commerce said its Core Index for personal consumption spending increased 0.3% in July, from 0.2% from June; however, the data lacked expectations. According to consensus forecasts, economists expect to see an increase of 0.5%.
Annual core inflation rose 1.3%, up from the June reading of 1.1%.
Gold prices showed strong gains for the report and have pushed slightly higher in the initial reaction. Gold futures traded at $ 1,968.70 an ounce in December, up 1.82%.
While at first glance the weak inflation data would be negative for gold, some analysts have said that this could also be seen as supportive. Weak inflationary pressures mean that the Federal Reserve has room to continue its aggressive pursuit of monetary policy.
The latest inflation data comes a day after Federal Reserve Chairman Jerome Powell announced a shift in the perspective of the central bank’s monetary policy. In a speech during the annual summit of Jackson Hole central bank, he said the Federal Reserve will target an average of 2% inflation and emphasize ‘broad and inclusive’ employment.
While inflation remained quiet, the report also showed improving economic conditions. The report said personal consumption rose 1.9% last month, following the 5.6% increase from June. Economists expect personal spending to increase 1.5%.
Looking at personal income, the report said it rose 0.4%, up from the negative reading of 1.1% from June. The data were much better than expected, as economists were looking for a -0.3% drop in personal income.
“The income and expense numbers are a great sign for spending to continue,” said Adam Button, chief currency strategist at Forexlive.com.
Although the US consumption data were better than expected, economists at CIBC said that economic activity still has a lot to do after the design impact of the COVID-19 pandemic.
“Total consumer spending remains almost 5% below February levels,” he said. “Whether commodity spending can remain so strong will largely depend on ongoing income support for those who are still unemployed.”
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