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Gold price struggling despite strong rise in U.S. PPI, rising inflation fears

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(Kitco News) - Gold prices continue to struggle even as producers see higher input costs, stoking further fears of rising inflation.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.6% in April following March’s rise of 1.0%; the data was stronger than expected with economists' forecasting an increase of 0.3%.

For the year, headline inflation rose 6.2%, “the largest advance since 12-month data were first calculated in November 2010,” the report said.

Looking at core producer prices, which strips out volatile food and energy costs, the index rose 0.7% last month, following a 0.7% rise in March. The core inflation data was also hotter than expected with consensus forecasts calling for a rise of 0.4%.

Annual core inflation rose 4.6% last month, “the largest advance since 12-month data were first calculated in August 2014,” the report said.

The gold market is struggling to find traction even as inflation pressures start to pick up. June gold futures last traded at $1,817.30 an ounce, down 0.3% 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.

"That's another upside miss on inflation. PPI is certainly second-fiddle to CPI but those cost pressures move down the chain," said Adam Button, chief currency strategist at

Some analysts have said that despite being an inflation hedge, gold prices are struggling because there is growing pressure for the Federal Reserve to tighten interest rates sooner than expected.

However, other economists have said that although inflation pressures are rising fast than expected across the board, there are still no major signs that it will be permanent. The Federal Reserve has consistently said that it expects higher inflation to be transitory.

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