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The PCE Index and Its Likely Effect on Precious Metals

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Oct. 1 2015, Published 5:57 p.m. ET

Gold futures slip

Gold futures for December delivery on COMEX, a division of the New York Mercantile Exchange, traded in the range of $1,127.50–$1,147.80 per ounce before settling at $1,133.60, falling by $12 or 1.05% on Monday, September 28. Despite a volatile month of trading, gold futures were up by close to 1% in September after opening the month around $1,125 per ounce. Gold likely gained support at $1,104.10, the low from September 14, and met with resistance at $1,149.80, the high from September 25.

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Tracking the miners

Gold mining stocks are also affected by the changes in the price of the yellow metal. A substantial fall in the price of gold will likely also lead to a fall in the prices of the mining equity stocks. Companies that saw a drop in their share price on Monday include First Majestic Silver (AG), Primero Mining (PPP), IamGold (IAG), and Eldorado Gold (EGO). These four companies saw a trading loss on September 28. These stocks account for 6.35% of the VanEck Vectors Gold Miners ETF (GDX). Other ETFs that are also affected by the changes in gold price include the SPDR Gold Shares (GLD) and the VanEck Vectors Junior Gold Miners ETF (GDXJ).

Core PCE Index

The US Department of Commerce’s Bureau of Economic Analysis, also known as the BEA, said that its PCE[1. Personal consumption expenditure] Index increased by $54.9 million or 0.4% in August. The Core PCE Index or Real PCE strips out food and energy prices and is a preferred alternative to inflation by the Federal Open Market Committee, or FOMC. Inflation in turn is the primary determinant for raising the short-term interest rates for the first time in nearly a decade. And investors know about the much-discussed impact of this rise in rates on precious metals. Gold investment may lose its allure, as gold is non-interest- or dividend-bearing, like other competitive assets.

Personal income rose by 0.3% in September, which is lower than the 0.5% figure in the previous month. The figure also missed the forecast of 0.4% by 0.1%. Personal spending figures, however, were active at 0.4%, which is 0.15 higher than the estimate of 0.3%. Personal spending and personal income data are indicators of the economic health of a country, which can have effects on the Fed’s decision of liftoff and precious metals.

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