Gold Heads Higher After PPI as Attention Shifts to Inflation

Aug 09, 2018

Gold prices traded higher on Thursday as softer-than-expected inflation indicators eased concerns over an acceleration of rate hikes from the Federal Reserve ahead of the consumer price index out on Friday.

At 10:29 AM ET (15:29 GMT), gold futures for December delivery on the Comex division of the New York Mercantile Exchange rose $2.20, or 0.18%, to $1,223.20 a troy ounce.

Producer price inflation for July was unchanged from the previous month, with the annualized increase easing from 3.4% to 3.3%, according to data released on Thursday.

Core PPI, which excludes volatile food and energy costs, also unexpectedly eased to a gain of 2.7% from a year earlier.

When producers pay more for goods, they are more likely to pass price increases on to the consumer, so PPI could be considered a leading indicator of inflation.

All of the readings were softer than consensus had expected, easing pressure on the Federal Reserve to accelerate rate hikes for the future.

Still, market participants were likely to remain cautious as they await the release of the more widely followed consumer price index for July.

Headline inflation is forecast to inch up to 3.0% while core inflation is expected to hold at 2.3%, above the Fed’s 2% objective.

Markets have priced in a rate hike for the Fed’s next meeting in September and the probability of an additional hike in December has been hovering around 70%, according to ’s Fed Rate Monitor Tool.

Higher interest rates tend to weigh on demand for gold, which doesn’t bear interest, in favor of yield-bearing assets.

Meanwhile, unemployment data out Thursday did little more than confirm the solid state of the U.S. labor market. Initial jobless claims rose by 213,000, beating the estimate for a rise of 220,000.

In other metals trading, Silver futures rose 0.38% at $15.490 a troy ounce by 10:31 AM ET (15:31 GMT).

Palladium futures advanced 0.41% to $890.00 an ounce, while sister metal Platinum gained 1.01% at $837.90.