Gold slips after hot inflation report

Gold slips after hot inflation report

Gold slips early Friday after a second hot inflation report this week, pushing out analysts’ expected timeline on Federal Reserve interest rate cuts and pressuring gold prices as the dollar and Treasury yields strengthened.

The producer price index, which measures wholesale prices, accelerated at a faster-than-expected pace of 0.6% in February, according to data released Thursday by the U.S. Bureau of Labor Statistics. That was double the rate forecast by economists. The report came out two days after the core U.S. consumer price index, the cost of goods excluding volatile food and energy prices, came in above forecasts for the second consecutive month.

Consumer sentiment and industrial production data are due out Friday and may provide additional direction, as will the statement following next week’s meeting of Fed policymakers. Continued high interest rates would be considered bearish for the yellow metal, making it a less attractive asset for investors. But gold has support from haven demand prompted by geopolitical uncertainty. 

Front-month gold futures fell 0.6% Thursday to settle at $2,167.50 an ounce on Comex, and the most-active April contract is down 0.8% so far this week. Bullion dropped 0.6% in February after declining 0.2% in January and gaining 0.7% in December. The metal rose 13% in 2023. The April contract is currently down $5.2 (-0.24%) an ounce to $2162.30 and the DG spot price is $2158.10.

The 0.6% increase in the costs for raw, intermediate and finished goods followed a 0.3% increase in January. On a year-on-year basis, the index rose 1.6% in February, the biggest move since September. Excluding volatile food and energy costs, so-called core PPI accelerated by 0.3% for the month topping a 0.2% estimate.   

On Tuesday, data showed core CPI increased 0.4% last month, the same amount as in January, Top-line CPI was also up 0.4% from January. On an annual basis, though, core CPI rose 3.8%, the slowest pace since May 2021. Headline CPI was up 3.2%. 

The Fed closely tracks both inflation and labor market data when determining monetary policy. 

The monthly U.S. jobs report came in last week and showed the country added a greater-than-expected 275,000 jobs in February, though the unemployment rate went up. Thursday, weekly initial jobless claims came in at a seasonally adjusted 209,000 for the week ended March 9, down by 1,000. Economists had forecast 218,000. 

U.S. retail sales data also came out Thursday and showed a rebound in February after their steepest decline in almost a year in January. 

About 99% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged next week, while 1% expect a 25 basis point cut. More than 94% of investors tracked by the tool also anticipate the Fed will hold rates steady at the following policy meeting in May. Most are now looking to June for a rate cut. 

The central bank has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% at its last meeting. 

Front-month silver futures fell 0.4% Thursday to settle at $25.06 an ounce on Comex, but the May contract rallied 2.1% in the first four days of the week. Silver lost 1.2% in February after falling 3.8% in January and dropping 6.1% in December. It ticked up 0.2% in 2023. The May contract is currently up $0.400 (+1.60%) an ounce to $25.460 and the DG spot price is $25.19.

Spot palladium increased 0.3% Thursday to $1,082.00 an ounce and is up 5.4% so far this week. Palladium fell 4.6% in February after tumbling 11% in January and advancing 8.6% in December. Palladium plummeted 38% last year. Currently, the DG spot price is up $28.90 an ounce to $1110.50.

Spot platinum retreated 1.1% Thursday to $937.30 an ounce but is up 2.3% so far this week. Platinum decreased 4.9% in February after falling 8% in January and rising 8.1% in December. Platinum dropped 6.8% in 2023. The DG spot price is currently up $19.70 an ounce to $957.40

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