Gold prices ignore 1.3% drop in U.S. PPI in April

New York (May 13)  The gold market continues to hold on to gains above $1,700 but is seeing little market reaction to indications of significantly weaker inflation pressures on the horizon. Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) fell 1.3% in April, following March’s drop of 0.2% ; the data was weaker than than expected with economists’ forecasting an fall of 0.5%.

At the same time core PPI, which strips out volatile food and energy costs, fell 0.3% last month, following March’s increase of 0.2%. Economists were expecting to see a drop of 0.1%.

The gold market is seeing little movement in initial reaction to the data as gold prices hold gains above $1,700 an ounce. June gold futures last traded at $1,719 an ounce, up 0.71% on the day.

The latest economic data while weaker than expected is not shocking to many economists as the global economy has ground to a halt because of the COVID-19 pandemic.

In the U.S. most consumers have been forced to stay home since mid-March as state governments have closed all non-essential businesses in an attempt to slow the spread of the virus. Economists have noted that these measures have created a massive demand shock in the U.S. economy.

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.

Although the data points to growing deflationary pressures, many commodity analysts have said that long-term investors should look past this short-term noise in the marketplace. They have noted that weak inflation pressures will prompt the Federal Reserve to maintain their extremely loose monetary policies to support the economy.

Ultimately, all the liquidity the central bank is pumping into financial markets will push inflation higher, supporting gold prices, analysts have said.

KitcoNews