Gold continues to rally to all-time highs even as U.S. producer prices cool in February
NEW YORK (March 13) Easing inflation fears continue to have little impact on gold, as investors still view the precious metal as an important safe-haven asset to hedge against growing economic uncertainty.
According to some analysts, even muted inflation pressures, as producers see easing prices, are not enough to shift the negative sentiment in the marketplace.
The headline Producer Price Index (PPI) remained unchanged in February, following January’s 0.4% increase, the U.S. Labor Department announced on Thursday. The latest inflation data was cooler than expected, as economists had anticipated a 0.3% increase.
Over the past 12 months, headline wholesale inflation rose 3.2%, slightly below consensus estimates of 3.3%.
Core PPI, which excludes volatile food and energy costs, declined 0.1% last month, missing economists’ forecasts for a 0.3% increase.
Annual core PPI stood at 3.4%, also below the consensus expectation of 3.5%.
The gold market is seeing little reaction to the muted inflation pressures, continuing to trade near last month’s all-time highs above $2,950 an ounce. Spot gold last traded at $2,944.80 an ounce, up 0.37% on the day.
PPI is considered a leading inflation indicator, as producers pass higher input costs on to consumers. The latest PPI data follows the U.S. Consumer Price Index (CPI) report, which also showed subdued inflation pressures last month.
In recent months, U.S. inflation data has been a complicating factor for gold. While high inflation has pushed the Federal Reserve toward a neutral monetary policy stance, it has also raised concerns about slower economic activity and potential stagflation—an environment analysts say is particularly favorable for gold.
Analysts note that the weaker PPI data alleviates some stagflation fears; however, it also gives the Federal Reserve room to cut interest rates further this year. Some analysts suggest that the U.S. central bank’s next rate cut could propel gold prices above $3,000 an ounce.
At the same time, economists caution that the PPI data may not fully reflect the impact of the U.S. government’s ongoing trade war on prices. Some producers have already warned consumers of impending price increases to offset higher costs stemming from U.S. tariffs on imported goods, as well as retaliatory tariffs from China, Europe, Canada, and Mexico.
Although the headline and core data came in weaker than expected, Thomas Ryan, North American Economist at Capital Economics noted that some key components of the inflation data were hotter than expected.
“Overall, the February CPI and PPI data point to another above-target 0.35% m/m increase in the core PCE deflator last month. This would push the annual rate up to 2.8%, from 2.7%, while the three-month annualised rate would jump even more sharply to 3.4%, from 2.4%. This is the opposite of the downward progress on inflation the Fed needs to see to justify easing policy further and reinforces our view that the window for cuts has already closed this year,” he said in a note. “This is further supported by signs in the ISM prices paid survey data that product- and country-specific tariffs are already putting upward pressure on firm’s input costs which will eventually be passed onto consumers.”
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