Gold futures retreated on Thursday after much higher-than-expected producer prices data, proving that inflation has yet to be vanquished from the US economy. The yellow metal has struggled to build on its gains and exceed the promised land of $2,200. If inflation readings worsen, could gold prices slump due to monetary policy expectations?
April gold futures fell 0.5% to $2,163.09 per ounce on Thursday on the COMEX division of the New York Mercantile Exchange. Gold has eased since hitting a peak of $2,194.99 an ounce last week. Year-to-date, the yellow metal is up nearly 5%.
Silver, the sister commodity to gold, remained above $25. May silver futures added $0.07, or 0.28%, to $25.13 an ounce. The white metal is also up close to 5% year-to-date.
Financial markets combed through the latest inflation reading.
In February, the producer price index (PPI) rose 0.6%, up from 0.3% in January, and higher than the consensus estimate of 0.3%. The core PPI, which removes the volatile food and energy sectors, jumped at a higher-than-expected pace of 0.3%.
Meanwhile, retail sales rose at a smaller-than-expected 0.6%, initial jobless claims were flat at 209,000, and business inventories were unchanged at 0%.
Ultimately, investors are worried that the Federal Reserve could continue to delay its first rate cut due to renewed inflationary pressures, solid economic growth, and a strong labor market.
For now, investors are sticking to their forecast of a rate cut at the June Federal Open Market Committee (FOMC) policy meeting.
“I expect to see continued pressure (on gold), with all of the data showing the U.S. economy is strong, the labor market still strong,” said Chris Gaffney, president of world markets at EverBan, in an interview with CNBC. “It really makes investors question just how quickly the Fed’s going to decide to start cutting (rates).”
The key portion of next week’s FOMC powwow will be the Summary of Economic Projections (SEP) and the dot-plot.
In other fundamentals, the greenback strengthened as the US Dollar Index (DXY) firmed above 103.00. A stronger buck is bad for dollar-denominated commodities because it makes it more expensive for foreign investors to purchase.
The US Treasury market was up across the board but was mixed in overnight trading. The benchmark ten-year yield remained around 4.28%. Gold is sensitive to fluctuations in interest rates because it influences the opportunity cost of holding non-yielding bullion.
In other metal markets, May copper futures were little changed at $4.05 a pound. May platinum futures slipped $4.40, or 0.47%, to $931.30 per ounce. May palladium futures shed $9.10, or 0.84%, to $1,069.50 an ounce.