Strong Gains in Gold as the PCI Index Comes in Below Economic Predictions

November PCI Index: Inflation Below Expectations Sparks Optimism for Larger Fed Rate Cuts

This morning, the US Bureau of Economic Analysis released the PCI index for November. As this report is the preferred inflation measure of the Federal Reserve, it garners our attention. The report revealed that headline inflation in November rose by 2.6% on an annual basis, well below economic expectations of 2.8%. The core PCI which excludes both the cost of energy and food rose 3.2% below the core PCI in October which came in at 3.4%.

This report follows the final estimate for the third quarter GDP that was released yesterday. The report revealed that GDP increased at an annual rate of 4.9%, which is a downward revision from the previously reported numbers, which came in at 5.2%.

The revised GDP coupled with today’s PCI inflation index has increased optimism by investors that the Federal Reserve will cut interest rates by a larger amount than revealed in the Federal Reserve’s “dot plot.” It also increases optimism that the Fed will begin its cycle of rate cuts sooner than previously expected, maybe as early as March of next year.

Gold Futures Reach Highest Close Since December Surge

The net effect was dollar weakness and bullish market sentiment for gold, taking the precious metal higher. As of 4:45 PM EST, gold futures basis the most active February 2024 contract (GC G24) is fixed at $2064.60, after factoring in today’s gain of $6.70 (+0.32%). Gold traded to a high of $2083 after opening this morning at $2061. It is the highest closing price since gold surged on December 1 and closed at $2095 per ounce.

Investors Anticipate 1.5% Cut by 2024

Trading next week as well as the following week will be shortened, with both weeks being closed on Monday. As the New Year approaches, investors have much to celebrate with the exceedingly high probability that interest rates will be dramatically lower next year. Investors are now anticipating the possibility of an interest rate reduction of 1 ½% by the Federal Reserve in 2024. And as I said yesterday, It seems that the long-awaited pivot by the Federal Reserve from “higher for longer”, will possibly get to be titled “earlier and faster” with rate cuts potentially coming as early as March.

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Wishing you as always good trading,

Gary S. Wagner