The Biggest Reason to Buy Gold Is Disappearing

  • Gold price edges closer to three-and-a-half month lows.
  • Core PCE came in at 1.3% annually in the third quarter, well below the Federal Reserve’s 2% target.
  • The relationship between real interest rates and inflation holds the key to gold’s bull market.

The price of gold continued to weaken on Wednesday, as tame inflationary pressures undermined one of the biggest reasons to hold the precious metal: Inflation rising faster than real interest rates.

The precious metals market continued lower ahead of Thanksgiving holiday, as appetite for risk capped gold and silver.

February gold futures declined 0.5% to $1,459.70 a troy ounce on the Comex division of the New York Mercantile Exchange. The yellow is targeting the November low of $1,453.70. A break below that level would send prices toward four-month lows.

Gold futures
Gold for February settlement is stuck in a narrow downward range. | Chart: barchart.com

Silver prices dumped 0.8% to $17.03 a troy ounce in New York trading. The grey metal was last seen hovering around $17.03 an ounce.

Gold’s premium over silver strengthened marginally on Wednesday, climbing 0.2% to 85.66 ounces.

Precious metals were also being pressured by a stronger U.S. dollar, which rose 0.2% against a basket of competitor currencies.

PCE Undershoots Fed Target

The U.S. economy grew faster than initially forecast in the third quarter, but underlying inflation continued to undershoot the Federal Reserve’s target – undermining one of gold’s biggest value drivers.

Gross domestic product (GDP), the value of all goods and services produced int he economy, grew at an annualized rate of 2.1% in the third quarter, the Commerce Department reported Wednesday in a revised estimate. Government economists had initially reported growth of 1.9%.

US GDP growth
U.S. gross domestic product (GDP) expanded slightly faster than expected in the third quarter, revised estimates show. | Chart: U.S. Bureau of Economic Analysis

The core personal consumption expenditure (PCE) index…

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