Gold Prices Holding Gains Following Weak U.S. PPI Reading
Thursday, August 9, 2018 - 8:43:23 PM

The gold market is holding its own as U.S. wholesale inflation pressures rose less than expected last month.

Thursday, the U.S. Labor Department said its Producer Price Index (PPI) was unchanged in July following an increase of 0.3% in June. According to consensus forecasts, economists were expecting an increase of 0.2%.

Annually, headline producer inflation rose 3.3%.

Core PPI, which strips out volatile food and energy costs, also rose only 0.1% last month, following a 0.2% increase in June. Economists were expecting to see an increase of 0.2%. For the year core inflation rose 2.8%.

Gold prices were in positive territory ahead of the report and are slightly higher in initial reaction. December gold futures last traded at $1,224.2 an ounce, up on the day 0.26% on the day.

While weak inflation is traditionally negative for gold, which is seen as an inflation hedge, the data could be positive for the yellow metal. Many analysts have noted that gold has suffered from surging momentum in the U.S. dollar, which has been driven in part by rising U.S. interest rate expectations; economists have noted that muted inflation pressures could keep the Federal Reserve from raising interest rate aggressively, which could deflate the U.S. dollar and support gold prices.

Market participants pay close attention to the PPI as a gauge for inflation at the wholesale level. PPI is seen as a leading indicator because traditionally, producers pass on higher prices to their customers.

Markets will have to until Friday to see if companies are passing on higher prices to their consumers. Currently markets are expecting to see no change in March’s Consumer Price Index.
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