Gold Price Continues To Struggle As PPI Hints That Inflation Might Have Peaked

(Neils Christensen - May 12th, 2022)

(Kitco News) - The gold market continues to struggle to attract bullish momentum and signs that inflation pressure could have peaked are not helping improve market conditions.

Thursday, the U.S. Labor Department said its Producer Price Index (PPI) rose 0.5% in April, following March’s 1.6% rise; the data was in line with expectations.

The report said that annual inflation rose 11%, coming in hotter than expected. According to consensus estimates, annual inflation was forecasted to rise 10.7%

The report said that core inflation, which strips out food and energy costs rose 0.4%, slightly missing expectations. Markets were looking for a 0.6% rise. For the year, core inflation rose 6.9%.

The gold market is not seeing much reaction to the latest inflation data. June gold futures last traded at $1,845.40 an ounce, down well 0.45% on the day.

Some analysts note that gold continue to see strong headwinds from the U.S. dollar, which continues to trade near a two-decade high. Economists also note that the latest producer price data supports the Federal Reserve’s aggressive plans to raise interest rates.

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.

While some economists have said noted the latest inflation data could highlight a peak in price pressures, others continue to question just how fast prices will start to fall.

“These numbers are close to expectations but indicate no let-up in pipeline inflation pressures in April. That will spill over into CPI increases in May, June and July,” said Adam Button, chief currency strategist at Forexlive.com.