Inflation Is Still 3.4%. Gold Rose Anyway, Because the Fed Blinked First.

3.4%. That’s how fast prices are rising year over year, by the Fed’s favorite yardstick. And it was good news. That’s where we are.

August PCE came in lighter than expected. Headline prices rose 0.3% on the month and 3.4% on the year. Core, which strips out food and energy, rose 0.2% and 3.0% on the year, per Kitco. Gold rose 0.73% to $4,211.70 on the print.

Good News Is Relative

Three percent core inflation is not a victory. The Fed’s target is 2%. But the market wasn’t grading against the target. It was grading against the fear.

Earlier this week, an October rate hike was priced at roughly 70%, per Kitco. After the data, the odds fell to the low-40% range. Nothing about inflation got fixed. The market simply stopped pricing the worst case.

That’s what moves gold right now. Not whether inflation is high, but whether the Fed has to keep hiking into it. Gold pays no interest, so every hike makes it a little harder to hold.

The Part That Cuts the Other Way

Consumer spending rose 0.9% in August, per the Globe and Mail, against a downwardly revised 0.1% in July. Personal income rose only 0.2%, per Kitco. Americans spent much faster than they earned.

Yesterday I wrote about consumer confidence at 81.9, the lowest since 2014, per the Rio Times. People say they feel terrible. Then they spend 0.9% more. Sentiment and behavior disagree, and the Fed has to pick which one to believe.

Also notice what didn’t move. The 10-year Treasury yield held near 5.2%, per Kitco, and silver slipped 0.45% to $61.07. Gold’s rebound has a ceiling, and long-dated yields are it.

What This Means for Stackers

Look at the last three sessions. Gold fell 3.12% on Monday, per the Rio Times, then rose 1.39% Tuesday to $4,185. It’s up again this morning. That’s a correction with a pulse, not a bottom.

I’m not going to tell you it’s over. The next tests are the ISM manufacturing report and Friday’s September jobs report. Another soft number and the hike case weakens further. A hot one and Monday’s selloff comes back.

If you buy on a schedule, none of this changes the plan. Hike odds just dropped sharply, and yields are still near 5.2%. Both facts are true at once. Stack accordingly.