Gold Prices Holding Modest Gains Following Weak PPI Data
(Kitco News) - Gold prices are holding on to modest gains as producer inflation pressures in the U.S. came in below expectations in the final month of 2017
Producer Price Index (PPI) fell 0.1% in December, following an increase of 0.4% in November, the U.S. Labor Department said on Thursday. According to consensus forecasts, economists were expecting to an increase of 0.2%.
Despite the monthly decrease, annual inflation increased 2.6%, its biggest increase since 2011.
Core inflation, which strips out volatile food and energy prices dropped 0.1% last month, following the previous increase of 0.3%. Annual core inflation rose 2.3%.
February gold futures were modestly higher ahead of the data, seeing continued safe-haven demand as a result of growing uncertainty in financial markets. However, the market has seen little reaction to the data, with prices last trading at $1.321.80 an ounce, up 0.17% on the day.
Economists watch producer prices carefully because they are seen as leading indicators as companies pass on higher costs to consumers.
The Federal Reserve is expecting to raise interest rates three times in 2018 as they see inflation eventually pushing towards it 2% target.
Royce Mendes, senior economist at CIBC World Markets, said that December’s weak report completely undoes the strength reported in the previous month. He added that the weak PPI data creates some downside risk to the Consumer Price Index numbers to be released Friday.
“The general trend in underlying prices still appears to be on an upswing, but today's numbers could have some expecting a slightly weaker CPI print tomorrow. We're already forecasting an only modest increase of 0.1% on the headline rate, but odds of hitting our 0.2% core projection may have marginally slimmed,” he said.