(Kitco News) - The gold market remains under pressure but continues to hold support above $1,700 an ounce as inflation in the U.S. proves to be persistent, even as energy prices decline.
Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) fell 0.1% in August, following July's 0.4% drop; the data was in line with expectations.
For the year, headline inflation rose 8.7%; economists were forecasting annual inflation to rise 8.7%
However, stripping out food and energy prices, core PPI is proving a lot more resilient, rising 0.4%, up from July's 0.2% rise. The core data was hotter than expected as economists were looking for a 0.3% increase.
For the year, core inflation rose 7.3%; economists were expecting a 7.1% increase.
The gold market is not seeing much reaction to the latest inflation data; however, prices remain under pressure following Tuesday's surprise rise in consumer prices. December gold futures last traded at $1,713.30 an ounce, down 0.23% on the day.
"The ex-food and energy numbers are disappointing. Inflation is flowing through the core right now and that's what has the market worried. These are close enough to expectations not to cause big ripples but bad enough to keep dip buyers at bay," said Adam Button, chief currency strategist at Forexlive.com.
The report noted that producer gasoline prices fell 12.7% last month. However, the report said that services for commercial businesses increased along with construction machinery and equipment prices.
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.
Sticky inflation pressure is weighing on gold prices because it is forcing the Federal Reserve to maintain its aggressive monetary policy stance. According to the CME FedWatch Tool markets now see a 34% chance of the U.S. central bank raising the Fed Funds rate a full 1% next week. Monday, markets were still debating whether it would be a 50-basis point move or a 75-basis point move.
