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Gold Prices See Muted Reaction To Rising Core PPI Numbers

Kitco News

(Kitco News) - Hotter-than-expected pipeline inflation pressures are not having much impact on gold, one day after the metal's biggest gains in nearly two years.

Thursday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.4% last month following a 0.1% decrease in December. The data was in line with consensus forecasts. The report said that annual inflation rose2.7%.

However, Core inflation, which strips out volatile food and energy prices was up 0.4% in January, up from December's 0.2% rise. The data was much stronger than economist expectations, calling for a rise of 0.2%. For the year, core inflation rose 2.5%., "the largest rise since 12-month percent change data were available in August 2014," the report said.

Gold prices were modestly weaker ahead of the report as investors took profits after the previous session's 2% rally. Gold has seen little movement in initial reaction to the data; April gold futures last traded at $1,355.40 an ounce, down 0.21% on the day.

Producer inflation is seen as a leading indicator for many economists at businesses typically pass on higher prices to consumers. According to some economists, the higher than expected inflation data could lead to further growth in inflation expectations, prompting the Federal Reserve to tighten monetary policy more aggressively than markets are currently pricing in.

While gold is seeing some modest selling pressure, the market remains resilient against rising U.S. bond yields. U.S. 10-year bond yields are within striking distance of 3%, last trading at 2.917%, a new four-year high.

A weaker U.S. dollar is helping gold find some support as the U.S. dollar index trades near its recent three-year lows.

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