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Gold Edges Up As PPI Rises 0.2% In August

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(Kitco News) - Gold saw an uptick following slightly weaker than expected U.S. producer inflation pressures.

Producer Price Index rose 0.2% in August following a drop of 0.1% in July, the U.S. Labor Department said on Wednesday. According to consensus forecasts, economists were expecting an increase of 0.3%.

The annual PPI was up 2.4% last month, coming in short of economists’ expectations of 2.5%.  

Core inflation, which strips out volatile food and energy prices was up 0.1% in August, after falling 0.1% in July. Market consensus called for an increase of 0.2%. Annual core inflation came in at 2%, while the consensus forecasts called for a 2.0% rise.

Gold prices were marginally higher prior to the release of the report, as traders bought the dip following some profit-taking and stronger U.S. dollar. Immediately after the release, gold edged up, with December Comex gold last seen trading at $1,337.20 an ounce, up 0.34% on the day.

“The markets will be focused on inflation data this week, with producer prices due today, followed by consumer price data tomorrow. Inflation is expected to remain muted, which should create some momentum for the metals,” said Peter Hug, Kitco’s global trading director. “Would look for gold to move to the $1,337 level today, with silver taking a look at the $18 print along the way.”

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. Economists note that weak industrial could be a sign of falling economic momentum.

The Fed is also watching inflation pressures very closely, especially when making its decision to raise rates or not.

“Notions are growing that low inflation in the U.S. and the Euro zone will keep the Federal Reserve and European Central Bank from tightening their monetary policies as soon as they would like. That’s an underlying bullish element for the precious metals markets,” said Jim Wyckoff, Kitco’s senior analyst.

Economists were not impressed with the latest set of the PPI data, but said it was not damp enough to change their Consumer Price Index (CPI) forecasts ahead of tomorrow's release.

“Producer prices came in cooler than expected for August. The miss versus consensus on the month was largely due to a soft 0.1% gain the ex-food & energy measure,” said Royce Mendes, senior economist at CIBC Capital Markets. “Nevertheless, personal consumption expenditure prices were up a decent 0.2% on the month, thereby not providing any reason to change our call for CPI tomorrow. All told, not much for markets to chew on ahead of tomorrow's inflation data.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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