Gold prices rise to one-week high
Gold prices continued to rise, reaching a one-week high since June 5 after a lower-than-expected US inflation report.
Gold prices edge up after US inflation report
Gold price increased slightlyafter the latest data from the US showed inflationary pressures at manufacturing firms eased slightly in May.
The US Department of Labor said the producer price index (PPI) rose just 0.1% in May, below economists’ forecasts of 0.2%. Year-on-year, manufacturing inflation rose 2.6%, slightly higher than April’s revised 2.5% but still within market expectations.
Excluding volatile food and energy prices, core PPI rose just 0.1%, well below expectations of 0.3%. Year-on-year, core PPI rose 3%, lower than forecast and down slightly from April's 3.2%.
Immediately after the data was released at 8:30 a.m. EDT, gold prices continued to rise and traded around $2,385.42/ounce, up 0.89% on the day.
Why is this data important for gold?
The PPI is seen as a proxy for inflation because when production costs rise, businesses tend to pass some of it on to their selling prices, which in turn affects consumer inflation (CPI). The drop in producer inflation, combined with the lower-than-expected CPI (released yesterday), has reinforced expectations that the Federal Reserve (Fed) may soon cut interest rates.
Low interest rates are generally beneficial for gold because investors are less interested in profitable channels such as bonds or bank savings, and turn to gold as a tool to preserve value. Therefore, if the Fed really cuts interest rates in the near future, gold prices may continue to rise sharply.
