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Gold prices holding gains as U.S. PPI drops 0.5%, sees biggest decline since April 2020

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(Kitco News) - The gold market is holding on to solid gains but is seeing little reaction as inflation looks to have peaked following a sharp decline in wholesale prices.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) dropped 0.5% last month following September's revised increase of 0.4%. According to consensus forecasts, the data was significantly cooler than expected, with economists looking for an increase of 0.1%.

"The October decline is the largest decrease in final demand prices since a 1.2-percent drop in April 2020," the report said.

In the last 12 months, headline inflation rose 1.3%, the report said.

Meanwhile, core PPI, which strips out volatile food and energy costs, was unchanged last month, also coming in weaker than expected.

The gold market is not seeing much reaction to the latest inflation data; however, analysts note that the precious metal is seeing solid gains as Tuesday's cooling consumer prices shift interest rate expectations. December gold futures last traded at $1,971 an ounce, up 0.22% on the day.

Analysts have said that along with Tuesday's CPI data, the latest PPI inflation shows a growing disinflationary trend in the economy, which gives the Federal Reserve some room to ease back on its aggressive tightening stance.

The report noted that weaker energy prices was a major factor in last month's sharp drop. The Gasoline Index fell 15.3% last month; the broader Energy Index dropped 6.5%.

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