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Gold Edges Down As PPI Rises 0.4% In September

Kitco News

Gold Edges Down As PPI Rises 0.4% In September

(Kitco News) - Gold prices ticked down as producer inflation pressures in the U.S. met expectations for September.

Producer Price Index (PPI) rose 0.4% last month following an increase of 0.2% in August, the U.S. Labor Department said on Thursday. According to consensus forecasts, economists were expecting to an increase of 0.4%.

The annual PPI advanced to 2.6% in September, which marked the quickest pace in over five years and beat economists’ expectations of 2.5%.

Core inflation, which strips out volatile food and energy prices was up 0.2% in September, the same as in August. Annual core inflation came in at 2.1%, beating market consensus forecasts of 2%.

Immediately after the release, gold edged down, with December Comex gold futures last seen trading at $1,294.90 an ounce, up 0.47% on the day. Prior to the release gold prices hit a two-week high in pre-U.S. session trading.

The main drivers for the precious metals this week have been the slumping U.S. dollar and Federal Reserve's inflation outlook, according to Kitco’s senior analyst Jim Wyckoff.

“The precious metals bulls are having a good week, due to several factors that include some safe-haven demand, a weakening U.S. dollar, technical buying, and Federal Reserve members without a consensus on the inflation outlook,” Wyckoff said.

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.

The Fed also watches inflation pressures very closely, especially when making its decision to raise interest rates or not. The Consumer Price Index (CPI) is scheduled for release on Friday.

On Wednesday, traders digested the minutes from the September Federal Open Market Committee (FOMC) meeting, which revealed a growing worry around inflation.

“Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent,” the minutes said.

The weak inflation pressures are even causing some Fed members to question further interest rate hikes.

“Comments indicated a concern about the level of inflation, the key metric for higher rates. The Fed seems perplexed on the stubborn, below-target, inflation numbers, and the minutes showed a growing divide between the voting members on when and how aggressively the Fed should tighten,” said Kitco’s global trading director Peter Hug.

The CME FedWatch tool now sees an 86.7% chance of a December rate hike, up from 81.7% chance registered prior to the PPI release.

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