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Gold Prices Remain Weak Despite Rise In U.S. June PPI

Kitco News

(Kitco News) - Gold prices remain under pressure, and are seeing little reaction to hotter-than-expected producer inflation pressures.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.3% in June following an increase of 0.3% in May; the data was stronger than expected with economists’ forecasting an increase of 0.2%.

For the year, producer prices increased by 3.4%. “The largest 12-month increase since climbing 3.7% in November 2011,” the report said.

Core PPI, which strips out volatile food and energy costs, also rose more than expected with a 0.3% reading in the last month, following a 0.5% increase in May. Economists were expecting to see an increase of 0.2%. Core PPI increased 2.7% for the year.

Gold prices have been under pressure through most of the early part of the session as markets continue to ignore economic data. Gold prices, according to analysts are being driven by strong momentum in the U.S. dollar. August gold futures last traded at $1,250.40 an ounce, down 0.40% on the day.

Economists pay close attention to producer prices as it is a leading indicator for consumer prices. Companies pass on higher costs to their customers. Economists note that the stronger than expected PPI data raises the upside risk to consumer inflation pressures.

Higher inflation is historically positive for gold, which is seen as an inflation hedge; however, according to some commodity analysts, the market is not seeing much benefit because investors are more focused on interest rates. Analyst explained that higher inflation could prompt the Federal Reserve to aggressively raise interest rates, which supports a stronger U.S. dollar and weaker gold prices.

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