Wednesday 23 December 2015

Gold falls mildly amid solid U.S. income, inflation data in November

Gold futures fell slightly as the release of a flurry of economic data, including solid inflation figures, provided the Federal Reserve with leeway to enact further tightening measures when it convenes at a closely-watched meeting in March.On the Comex division of the New York Mercantile Exchange, gold for February delivery traded in a tight range between $1,067.70 and $1,074.90 an ounce before settling at $1,068.70, down 5.30 or 0.49% on the session. After last week's historic Fed rate hike triggered several rounds of frenzied, volatile trading, gold prices have stabilized early this week ahead of the Christmas holiday. Gold prices still remain near six-year lows from the early portions of this month.Gold likely gained support at $1,046.20, the low from December 3 and was met with resistance at $1,134.70, the high from Nov. 3.On Wednesday morning, the U.S. Department of Commerce's Bureau of Economic Analysis (BEA) said U.S. personal income ticked up by 0.3% in November, marking the eighth consecutive month that the figure moved higher. Analysts forecasted gains of 0.2% last month, following a robust increase of 0.4% in October. It came amid an acceleration in wages and salaries for government workers and an $11.6 billion bonus paid to United Auto Workers employees, one of the nation's largest unions.As the labor market continues to tighten, nearing full employment, wages and salaries have also increased exponentially. In November, wages rose by 0.5% following gains of 0.6% a month earlier. The strong gains in personal income should support consumer spending and bolster economic growth over the next year. Consumer spending, which represents roughly two-thirds of U.S. economic activity, increased by 0.3% in November, after remaining flat a month earlier.

In terms of inflation, the Personal Consumption Expenditure (PCE) price index remained flat in November, below consensus expectations for a 0.1% gain. On a yearly basis, though, the PCE price index increased by 0.4%, above 0.2% annual gains. The Core PCE index, which strips out volatile food and energy prices, inched up by 0.1% last month, in line with consensus estimates. Over the last year, core prices are up 1.3%, unchanged from October's reading. Core PCE prices, the Fed's preferred gauge for inflation, have fallen below its targeted goal of 2% for every month over the last three years.The relatively strong inflation data, however, could compel hawkish members of the Federal Open Market Committee (FOMC) to push for another rate hike during the first quarter of next year. In its December monetary policy outlook, the FOMC forecasted that its benchmark Federal Funds Rate could rise by 1.0% over the next 12 months to 1.5% by the end of 2016. On Wednesday, the CME Group's (O:CME) FedWatch placed the probability of a quarter-point hike in March at 53.6%.Gold, which is not attached to dividends or interest rates, struggles to compete with high-yield bearing assets in rising rate environments.The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.45% to an intraday high of 98.66. Earlier this month, the index eclipsed 100.00 to reach its highest level in more than 12 months.Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.Silver for March delivery fell 0.029 or 0.20% to close at $14.295 an ounce.Copper for March delivery gained 0.017 or 0.80% to $2.125 a pound.

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