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Gold prices unchanged following rise in U.S. PPI Data

Kitco News

(Kitco News) - The gold market is seeing little movement even as inflation pressure could start to rise as producer prices grow more than expected.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.3% in August, following July’s drop of 0.1% ; the data was stronger than expected with economists’ forecasting an increase of 0.2%.

The stronger-than-expected August reading has boosted headline wholesale inflation to 1.8%; economists were expecting to see an unchanged reading at 1.7%.

At the same time core PPI, which strips out volatile food and energy costs, rose 0.1% last month, following July’s increase of 0.2%. Economists were expecting to see an unchanged reading. Annual core inflation rose to 2.3%, up from July’s reading of 2.1%

Although higher inflation data is seen as bullish for gold, the yellow metal has not seen much reaction as prices remains below $1,500 an ounce. December gold futures last traded at $1,498,70 an ounce relatively unchanged on the day.

Economists pay close attention to producer prices as it is a leading indicator for consumer prices. Traditionally, companies pass on higher costs to their customers. Economists note that the weaker than expected PPI data adds some upside risk to consumer inflation pressures, which will be released Thursday.

Although the latest inflation data beat expectations, some market analysts don’t expect that it will have much impact on next week’s Federal Reserve monetary policy decision. Markets are expecting the central bank to cut rates.

“Core PPI is running a bit hot, but it's a long way from spilling into overall inflation,” said Adam Button, managing director at Forexlive.com.

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