The gold market still maintained its upward momentum above the 5,200 USD/ounce mark, however, according to some analysts, this precious metal may face resistance as the inflation risk in the US has not cooled down after the sharp increase in production prices.
The US Gross Productivity Index (PPI) increased by 0.5% in January, after a 0.4% increase in December, the US Department of Labor announced on Friday. The latest inflation data is higher than forecast, as economists only expect a 0.3% increase.
In the past 12 months, total wholesale inflation increased by 2.9%, according to the report.
Core PPI, excluding volatile factors such as food and energy, increased by 0.8% last month, much higher than the consensual forecast of 0.3%, after November data. Year-on-year core PPI data showed that wholesale inflation is gradually sinking deeper into the economy as a whole, with an increase of 3.6%, while analysts only expected 3.0%.
The gold market has hardly reacted significantly to these new inflation data. The latest spot gold price was traded at 5,278.11 USD/ounce, up 0.76% on the day. Although gold still benefits from safe-haven cash flow before the end of the week, some experts believe that higher inflation may force the US Federal Reserve to postpone its interest rate cut plan.
However, not all analysts believe that persistent inflation will prevent the US Federal Reserve (Fed) from lowering interest rates. Before the PPI data was released, Ms. Chantelle Schieven - Head of Research at Capitalight Research - said in an interview with Kitco News that if the US economy continues to weaken, the central bank will have no choice but to cut interest rates, even if inflation remains high.
She believes this will be a favorable environment for gold, because high inflation accompanied by interest rate cuts will reduce the opportunity cost of holding precious metals. According to her, gold is still an attractive safe haven asset, as high inflation and low growth are likely to put great pressure on the stock market.
PPI is considered an early inflation indicator, as manufacturers often shift the increased input costs to consumers.
Mr. Chris Zaccarelli - Investment Director of Northlight Asset Management - said that although inflation has not been a top concern for investors for some time, the sharp increase in wholesale prices in Friday's session may worry the stock market.
In the past month, the market has focused on disruptions caused by artificial intelligence and its impact on the labor market, so inflation is not a top priority. But this morning's inflation figures may give the Fed more reason to be more patient with interest rate cuts and wait until the second half of the year to make any changes," he said.
