Editor's Note: The article was updated to reflect price volatility in reaction to April PPI data.
(Kitco News) - The gold market is holding the line at $2,350 an ounce as inflation in the U.S. remains a growing threat, with producers seeing a significant rise in prices last month.
The Producer Price Index (PPI) rose 0.5% in April, following March's 0.1% decline, the Labor Department said on Tuesday. The latest inflation data was hotter than expected as economists looked for a 0.3% increase.
The report said that in the last 12 months, wholesale inflation rose 2.2%, its largest annual increase since April 2023. Annual inflation rose in line with expectations.
At the same time, core PPI, which strips out volatile food and energy costs, rose 0.5%, following a 0.2% increase in March. Core inflation was also hotter than expected, as consensus forecasts called for a 0.2% increase.
The gold market saw some modest volatility in its initial reaction. At first, the price dropped below a critical psychological level but has since recovered. June gold futures last traded at $2,352.30 an ounce, up 0.39% on the day.
PPI is seen as a leading inflation indicator as producers pass on higher costs to their customers.
However, looking beyond the headlines, some analysts note that March's downward revision indicates price pressures are rising in line with expectations.
March's revision has created some volatility in the marketplace.
"The market reacted to the m/m reading but the hot number was entirely due to a revision lower to the March data. If you net those out, it's right in line and that's reflected in the year-over-year numbers. Ultimately, the price level is where economists thought it was," said Adam Button, Head of Currency Strategy at Forexlive.com. "Now, you can argue there is some acceleration there, but this is mostly commodity prices, and oil has given some back this month."
Stubbornly high prices have created a challenging environment for gold as the Federal Reserve has said that it needs to be confident that inflation is headed towards its 2% target before it starts to cut interest rates.
In its last meeting at the start of the month, the U.S. central bank spooked markets after saying that inflation hasn't made enough progress toward its target.
