Gold Price Plunge: Effects of Surging PPI
Gold price tumbles as stubborn PPI dents Fed rate cut hopes.
- The price of gold dropped following the release of strong US Producer Price Index (PPI) data for February.
- Despite a 0.6% growth in US retail sales, which fell short of forecasts, gold prices are affected by increased US bond yields.
In the early New York session on Thursday, the price of gold (XAU/USD) experienced a significant decline following the release of the Producer Price Index (PPI) for February by the United States Bureau of Labor Statistics (BLS), which surpassed expectations. The precious metal faces downward pressure due to a strong US Dollar (USD) and rising bond yields, driven by the anticipation that the elevated PPI data will contribute to a persistent inflation outlook. Additionally, the US Census Bureau has announced that Retail Sales grew at a slower pace than anticipated by the market.
Tuesday’s release of US February inflation data exceeded expectations, mirroring a similar trend expected from the Producer Price Index (PPI) data. This is anticipated to heighten uncertainty regarding Federal Reserve (Fed) rate cut expectations for the June policy meeting. Consequently, yields on 10-year US Treasury bonds have risen to 4.21%, elevating the opportunity cost associated with holding non-yielding assets like gold.
The US Dollar Index (DXY) has edged slightly higher, reaching 102.85. Looking ahead, the primary catalyst for these assets will be the Federal Reserve’s interest rate decision and the new dot plot, which outlines interest rate projections. In the previous dot plot unveiled during the December meeting, three rate cuts were indicated for the year.
The price of gold has declined to $2,160, influenced by elevated US bond yields and a strong US Dollar following persistent United States Producer Price Index (PPI) data for February.
The yearly core Producer Price Index (PPI), excluding unpredictable food and energy costs, maintained a consistent growth rate of 2.0%, surpassing forecasts of 1.9%. Meanwhile, the monthly inflation figures, excluding volatile factors, increased by 0.3%, slightly higher than the anticipated 0.2%, yet lower compared to the previous 0.5% reading.
The monthly overall Producer Price Index (PPI) exhibited robust growth, expanding by 0.6%, surpassing both expectations and the previous reading of 0.3%. Annually, the headline PPI accelerated to 1.6% from the anticipated 1.1%, and January’s figure of 1.0%. This data reflects the rate at which producers have adjusted prices for goods and services at the factory level.