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Gold Prices Ignore 0.2% Rise in U.S. PPI

Kitco News

(Kitco News) - Gold prices remain on the defensive and below critical technical levels as wholesale inflation rises in line with expectations.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.2% in September following a drop of 0.1% in August. The data was in line with expectations. This is the first rise in headline inflation pressures in three months. For the year, producer inflation increased 2.6%.

Core PPI, which strips out volatile food and energy costs, rose 0.2% in the last month, following a 0.1% drop in August. Economists were also expecting to see an increase of 0.2%. Annually, prices for final demand less foods, energy, and trade services increased 2.9%.

U.S. economic data is having little impact on gold prices as the market continues to be dominated by the U.S. dollar. The yellow metal is seeing little reaction to the latest inflation data as prices remain below the critical technical level at $1,200 an ounce. December gold last traded at $1,189.60 an ounce, down 0.14% on the day.

Economists pay close attention to producer prices as it is a leading indicator for consumer prices, with companies passing on higher costs to their customers.

While inflation appears to be on the rise, economists note that levels are still fairly low, which could continue to support U.S. economic growth and keep the Federal Reserve from aggressively raising interest rates.

“The strength of underlying core producer price inflation suggests that consumer price inflation will continue to rise gradually over the remaining months of this year,” said Paul Ashworth, chief U.S. economist at Capital Economics.

He added that the consistent rise in inflation will keep the U.S. central bank raising interest rates once a quarter until the middle of 2019, “by which time we expect that slowing economic growth will prompt the Fed to move to the sidelines.”

U.S. President Donald Trump has once again inserted himself into the monetary policy conversation saying in a media scrum Tuesday that the Federal Reserve can afford to hold off on raising interest rates as there are no signs of inflation.

Talking about the progress the U.S. economy has made this past year, Trump said, "I don't want to slow it down even a little bit."

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