(Kitco News) - The gold market is attracting bullish momentum even as it remains within a broader trading range, with analysts noting that muted producer price inflation could provide additional upside for the precious metal.
The U.S. Labor Department said Tuesday that the headline Producer Price Index rose 0.5% in March, matching February’s revised 0.5% increase. The latest inflation data came in cooler than expected, as economists had forecast a 1.1% rise.
On an annual basis, headline wholesale inflation increased 4.0% over the last 12 months, the report said. That marks the largest 12-month advance since February 2023, when prices rose 4.7%. Despite the increase, annual wholesale inflation remained below expectations, with economists forecasting a 4.7% gain.
Core PPI, which excludes volatile food and energy prices, rose 0.1% last month, following February’s revised 0.3% increase. Core producer inflation also came in below expectations, as consensus forecasts had called for a 0.4% rise.
The report said core PPI increased 3.8% over the past 12 months, below economists’ expectations for a 4.2% increase.
Gold prices posted a modest gain in their initial reaction to the latest inflation data. Spot gold was last trading at $4,774.60 an ounce, up 0.73% on the day.
“Wall Street just got a much-needed breather on the inflation front as producer prices came in markedly softer than feared, signaling limited pass-through from the Middle East supply shock despite Brent holding firm near $94 and WTI around $91 amid persistent Hormuz risks and Gulf disruptions. With core pressures easing, the Fed's hawkish stance loses some bite, opening the door wider for rate cuts and softening the dollar — a classic tailwind that lets gold consolidate its lofty levels near $4,775 on enduring safe-haven bids from the Iran tensions,” said Naeem Aslam, Chief Invesment Officer at Zaye Capital Markets.
“Traders are now walking the tightrope: geo-driven supply fears keep oil range-bound with de-escalation hopes in play, while the macro disinflation signal hands precious metals fresh upside potential in this 'supply shock meets easing policy' setup."
PPI is considered a leading inflation indicator because producers often pass higher input costs on to consumers.
Analysts said the latest inflation data should continue to support gold prices, as it gives the Federal Reserve room to ease interest rates in the second half of the year.
Some economists noted that the consensus miss in producer inflation is notable given the spike in energy prices caused by the global supply crunch linked to the war in Iran. The report said that nearly half of the March increase in the index for final demand goods was due to a 15.7% rise in gasoline prices.
Adam Button, Head of Currency Strategy at Forexlive.com, said it appears economists underestimated three offsetting forces: the natural gas collapse, the removal of tariffs, and a broader deceleration in core services inflation.
“The energy pass-through was real but narrower than expected, and the rest of the economy's pricing power actually softened. The bad news is that much of the energy price rise is still in the pipeline and Hormuz still isn't open.”
