Gold Prices See Some Selling Pressure As U.S. PPI Rises 0.3% In January

(February 16, 2024 - Neils Christensen)

(Kitco News) - The gold market continues to test support just above $2,000 an ounce, struggling to attract bullish momentum as inflation pressures remain stubbornly elevated.

The Producer Price Index (CPI) rose 0.3% last month after December’s 0.1% increase, the Labor Department said on Friday. The latest inflation data was hotter than expected as economists looked for a 0.1% increase.

The report said that in the last 12 months, headline inflation rose 0.9%.

At the same time, inflation continues to embed itself in producer prices. Core PPI, which strips out volatile food and energy prices increased 0.5%, up from December’s unchanged reading.

Core inflation was significantly hotter than expected as consensus forecasts looked for a 0.1% increase.

The gold market is seeing some renewed selling pressure in its initial reaction to the latest inflation data. April gold futures last traded at $2,009 an ounce, down 0.23% on the day.

Economists pay close attention to producer prices as they are seen as a leading indicator. Rising wholesale prices mean companies will be pressured to pass on higher costs to their customers.

Increasing inflation fears created by the latest PPI numbers are causing inventors to push back the time of the Federal Reserve’s rate cuts. A March rate cut remains off the table and markets see a less than 30% chance of a move in May. Expectations for a June cut remain.

Analysts have noted that stubborn inflation, forcing the Federal Reserve to maintain its restrictive higher for longer monetary policy will continue to weigh on gold. However, analysts don’t expect to see much selling pressure as central bank demand helps to support the market.