Gold rallies after brief reaction to stronger PPI reading

Gold is trading around $1845 per ounce at the time of writing versus the previous closing price at $1835.60. Earlier on Thursday, the precious metal’s price action headed lower, to record fifth decline in six sessions, as the US dollar rallied further following the release of stronger-than-expected U.S. producer price index data.

Gold dropped to new daily lows after the PPI numbers were published, with April Comex gold futures last trading at $1,840.80, down 0.24% on the day.

Thursday’s data is showing a jump in wholesale prices follows Tuesday’s US consumer price index reading, which revealed inflation easing only slowly in January, suggesting the Federal Reserve will need to raise borrowing costs further.

In mixed data on Thursday, the Labour Department’s Producer Price Index (PPI) leapt by 0.7% in January, which was an abrupt reversal of December’s 0.2% dip and well above the 0.4% consensus. Year-over-year, the measure fell in at 6%, hotter than the 5.4% projection but a cool-down from the prior (upwardly revised) 6.5% print. The core PPI measure posted a monthly increase of 0.6%, triple the December rate, and an annual increase of 4.5% – a 20 basis point drop from the previous month.

On top of that, as if any further proof was needed after the blowout January Nonfarm Payrolls report, the jobs market data again today confirmed that the labour market is still carrying plenty of momentum. The Labour Department reported that jobless claims, for the fifth straight week, came in below the 200,000 level associated with a healthy employment mix.

A day prior, the United States Retail sales jump 3% in January, smashing expectations despite an inflation increase that might have otherwise kept consumers’ hands in their pockets, highlighting the strength of the economy. On Tuesday, the annual Consumer Price Index inflation rate in the US slowed slightly to 6.4% in January from 6.5% in December, the lowest since October 2021 but above market expectations of 6.2%. Last week’s Services PMI data for the prior month was impressively high also.

All in all, the data comes in contrast to wheat the markets had been pricing in terms of the Federal Reserve. However, following all of this inflationary data, the whole yield curve rose, and markets have started to embrace a higher for longer sentiment as estimates are now rising that the Fed may continue to raise rates into the summer.