Thursday, March 30, 2023
HomeMarketGold futures decline after stronger-than-expected U.S. PPI reading

Gold futures decline after stronger-than-expected U.S. PPI reading

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Gold futures headed lower on Thursday, looking to notch their fifth decline in six sessions, as the U.S. dollar strengthened further following the release of stronger-than-expected U.S. producer price index data.

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

Price action
  • Gold futures for April

    fell by $4.50, or 0.2%, to trade at $1,840.20 per ounce on Comex. Prices for the most-active contract haven’t settled at a level this low since Jan. 5, FactSet data show.

  • Silver futures for March

    declined by 7.7 cents, or 0.4%, to $21.495 per ounce.

  • Palladium for March
    delivery tacked on $4, or 0.3%, to $1,448.50 per ounce, while platinum for April
    declined by $1.60, or 0.2%, to $916.20 per ounce.

  • Copper for March
    climbed by 5.6 cents, or 1.4%, to $4.068 a pound.

Market drivers

The U.S. dollar advanced following the release of the U.S. producer price index, which jumped 0.7% in January to mark the biggest gain since last summer. Economists polled The Wall Street Journal had forecast a 0.4% increase.

The data follow Tuesday’s U.S. CPI data, which showed the cost of living rose 0.5% in January — the biggest increase in three months. The reading was hotter than expected, prompting traders to position for the possibility that the Federal Reserve could push its policy interest rate past 5%.

Cleveland Fed President Loretta Mester said Thursday that she would have liked the U.S. central bank to have been more aggressive at their last interest-rate committee meeting in January. She also said she saw a “compelling economic case for a 50-basis-point increase” in rates.

“The hits keep coming,” Stephen Innes, managing partner at SPI Asset Management, told MarketWatch. “Whether it’s more robust economic data or higher inflation readings, it’s certainly leading to a longer string” of 25 basis point hikes in interest rates from the Federal Reserve.

Still, “more worryingly, for gold bulls,” a 50 basis point rate hike could even enter the discussions, he said.

That PPI came in very hot, and I “suspect more than a few gold bulls get singed,” said Innes. “I think longs are holding on right now, but it feels like we’re entering a period of intense hawkish headwinds, so I think gold could trade lower.”

In Thursday dealings, the ICE U.S. Dollar index
climbed 0.2% to 104.15, pressuring prices for dollar-denominated gold. Treasury yields also advanced in the wake of the PPI data, with the yield on 10-year Treasurys
up 3.5 points at 3.845%.

“Gold investors are in desperate need of weaker U.S. economic data to halt the dollar demand,” said Innes.


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