(Kitco News) - After a solid overnight rally, rising inflation fears are limiting gold’s recovery Thursday, as higher producer prices show that the growing threat is unlikely to abate anytime soon.
The U.S. headline Producer Price Index (PPI) jumped 1.3% in September, following August’s revised 0.5% increase, the U.S. Labor Department announced Thursday. The latest headline data was significantly hotter than expected, as economists had forecast a 0.6% increase.
“The September increase is the largest advance since rising 1.7 percent in March 2022,” the report said.
Over the last 12 months, headline wholesale inflation increased 6.3%, above the expected 5.3% rise. The report noted that this was the biggest annual increase since December 2022.
Core PPI, which strips out volatile food and energy costs, rose 0.7% last month, above economists’ consensus forecast of 0.3% and following August’s upwardly revised 0.3% increase. Annual core PPI rose 5.0%, above consensus estimates of 4.4%.
The gold market is holding on to its overnight gains above $4,100 an ounce. Spot gold last traded at $4,151.90 an ounce, up more than 1% on the day.
Analysts note that persistent inflation is a headwind for gold, as it raises the opportunity cost of holding the non-yielding asset. However, some analysts have said that higher prices could eventually become a positive driver for gold if markets begin to believe that the Federal Reserve will be unable to get ahead of the growing inflation threat.
The latest PPI data comes a day after the U.S. Bureau of Labor Statistics reported that its Consumer Price Index rose 3.7% over the 12 months through September. Economists have said that the sharp rise in PPI indicates that inflationary pressures have not yet peaked.
Analysts also note that the sharp rise in core producer prices suggests higher energy costs are becoming embedded in the broader economy. PPI is viewed as a leading inflation indicator because producers can pass higher input costs on to customers.
“Producer prices just detonated any lingering hope that yesterday’s hot CPI was a one-off, blowing past expectations on both the core and headline readings and leaving the Fed’s disinflation story in tatters two days running,” said Artem Bakushev, Head of Risk, Monaxa, in a comment to Kitco News.
