Gold prices held firmly above $4,150 an ounce after staging an intraday recovery on Thursday, with a weaker US dollar and easing Treasury yields helping the precious metal withstand a fresh bout of inflation concerns.
At around 9:50 AM EST, Spot gold was trading around $4156 per ounce, up 1.63% from Wednesday, while futures for December delivery were trading at $4174 an ounce.
The rebound came despite producer price data showing a sharper-than-expected acceleration in wholesale inflation, following an unexpectedly strong consumer price reading a day earlier. The back-to-back inflation surprises raised concerns that the Federal Reserve could keep interest rates higher for longer, a development that would typically weigh on non-yielding assets such as gold.
September PPI surges above expectations
Data released by the US Department of Labor early Thursday showed that the headline Producer Price Index (PPI) increased 6.3% year over year in September, comfortably exceeding the market consensus forecast of 5.5%.
On a monthly basis, the final demand index rose 1.3%, more than double market expectations and marking its largest increase since March 2022.
The annual gain was also the highest since December 2022.
Underlying price pressures also strengthened. Core PPI, which excludes food and energy costs, climbed 0.7% during the month, taking its annual rise to 5.0%.
The figures suggest that inflationary pressures remain widespread across the production pipeline, potentially making it more difficult for businesses and policymakers to contain price increases.
For gold investors, the data presents a challenge. Persistent inflation could encourage the Fed to maintain restrictive monetary policy or consider additional rate increases.
Higher interest rates and Treasury yields generally make interest-bearing assets more attractive compared with gold.
Fed in focus
The PPI report followed September’s Consumer Price Index (CPI) release, which also showed inflation rising faster than expected.
The consumer inflation reading reflected upward pressure from energy prices and transportation costs, adding to concerns about the trajectory of inflation across the US economy.
With both consumer and wholesale inflation coming in hotter than anticipated, attention has turned to the Federal Reserve’s next policy decision and whether policymakers will consider another rate increase.
USB on Thursday predicted a rate hike in December and further tightening early next year, stating that rates are set to remain higher for longer.
However, the relationship between inflation and gold has become more complicated. Although higher inflation can lead to tighter monetary policy and increased Treasury yields, gold may also attract demand when investors become concerned about the broader economic consequences of persistent price pressures.
The dollar’s retreat and the easing of Treasury yields helped bullion recover on Wednesday, offsetting some of the pressure from the latest inflation data.
Analysts watch gold’s $4,000-$4,100 support zone
Despite the recovery, gold continues to face pressure from systematic selling, TD Securities strategist Ryan McKay was quoted as saying by Kitco News.
McKay said inflows into exchange-traded funds, central-bank purchases and discretionary investor positioning should provide meaningful support for gold in the $4,000-$4,100 range.
That zone could become an important area for market participants to monitor if selling pressure resumes. The strength of investment demand will be a key factor in determining whether bullion can maintain its recent recovery.
The market’s response to incoming economic data will also remain important.
Further evidence of persistent inflation could strengthen expectations for higher interest rates, while a retreat in Treasury yields and the dollar could help gold sustain its gains.
Despite the near-term uncertainty, Jefferies continues to forecast gold reaching $5,000 an ounce in 2027.
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