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Gold Market Asks: Where's The Inflation? U.S. PPI Drops In December

Kitco News

(Kitco News) - Gold prices are seeing little reaction but remain under pressure as inflation pressures remain elusive in the U.S. economy.

Tuesday, the U.S. Labor Department said its Producer Price Index (PPI) fell 0.2% in December following a 0.1% rise in November. According to consensus forecasts, economists were expecting to see a drop of 0.1% for the month.

For the year producer prices increased 2.5%, the same rise seen in 2017, the report said.

Energy prices continues to be the biggest drag on overall inflation pressures. The report said that its energy index dropped 5.4% last month.

Stripping out volatile energy and food prices, core PPI fell 0.1%, following November’s rise of 0.3%. Consensus forecast were calling for a 0.2% rise.

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.

Gold prices were under modest selling pressure ahead of the report and remain relatively unchanged in initial reaction. The market continues to stubbornly hold just below $1,300 an ounce. February gold futures last traded at $1,289.80 an ounce, down 0.12% on the day.

Although geopolitical uncertainty is keeping a bid under gold, some analysts have said that the yellow metal needs to see higher inflation pressures to break above $1,300 an ounce.

However, other analysts have noted that weak inflation pressure could eventually work in gold’s favor as the Federal Reserve appears to be preparing to pause its tightening cycle. Recently Federal Reserve Chair Jerome Powell said that the U.S. central bank can afford to be patient on rate hikes because of low inflation pressures.

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