U.S. Wholesale Inflation Puts off Gold’s Value

Following stronger-than-expected wholesale inflation data in the U.S., gold futures recovered early Thursday losses to finish higher.

‍

Inflation fell only slowly in January, as measured by the consumer price index reading on Tuesday, indicating the Federal Reserve will need to raise interest rates further.

‍

Economists polled by The Wall Street Journal had predicted a 0.4% increase in the U.S. producer price index. However, the index rose 0.7% to mark the biggest gain since last summer.

‍

Treasury yields rose 1.7 points to 3.827% on Thursday, easing back from Thursday's highs of 104.234. The ICE U.S. Dollar index climbed to 104.234, before declining to 103.851 for a near-day low.

‍

An analyst noted that gold had been "rebased" on a jump in yields and a stronger dollar. As investors continue to look for clues regarding the Fed's policy decisions, gold prices will continue to fluctuate around data releases (jobs, inflation, growth, etc.).

‍

Gold is still considered bearish by companies as long as investor flows keep stagnant. Specifically, exchange-traded fund flows, which flattened when gold rose, have again declined.

‍

Gold in the $1,900s per ounce and at current levels is difficult to be confident of, not only with little allocation interest from investors but also without signs of risk-off flows.

‍

After Tuesday's U.S. CPI reading, which showed a 0.5% rise in living costs in January, the economic data on Thursday came after Tuesday's reading. As a result of the hotter reading than anticipated, traders began positioning for the possibility that the Federal Reserve could raise its interest rate beyond 5% in the coming months.

‍

It would have been better had the U.S. Federal Reserve been more aggressive at their January interest-rate meeting, says Cleveland Fed President Loretta Mester.

‍

Stephen Innes, manager of SPI Asset Management, told Trade Algo that the hits keep coming. 

‍

Nevertheless, a 50 basis point rate hike could even enter the discussion, which would be more worrying for gold bulls.

‍