Gold price holding solid gains after another tame U.S. inflation report

Gold and silver prices are higher in early U.S. trading Friday, in the immediate aftermath of another U.S. inflation report that came in tame.

The headline Producer Price Index (PPI) rose 0.1% in September, following August’s 0.2% increase, the U.S. Labor Department announced on Friday. The latest inflation data was in line with expectations, as economists looked for a 0.1% increase.

In the last 12 months, headline wholesale inflation increased 1.8%, the report said, above the consensus of 1.6% but below August’s upwardly revised 1.9% reading.

Core PPI, which strips out volatile food and energy costs, rose 0.2% in September, also in line with economists’ forecasts and following August’s unrevised 0.3% reading. Annual core PPI was 2.8%, above the consensus expectation for a 2.7% reading and August’s 2.4% print.

PPI is viewed as a leading inflation indicator as producers pass higher input costs on to their customers.

Market analysts have said that falling producer prices, combined with improving CPI inflation, would give the Federal Reserve the confidence to continue lowering interest rates at upcoming meetings, which would help support gold’s long-term uptrend.

“I don’t see any inflation in this report,” said CNBC economics reporter Steve Liesman. The PPI numbers leaned friendly for the precious metals market bulls and suggest the Federal Reserve remains on track for two quarter-point interest rate cuts this year.

The University of Michigan said Friday that its Consumer Sentiment survey fell to 68.9, down from September’s revised reading of 70.1. The data was weaker than expected, as economists had anticipated a more modest rise to 70.9.

Gold continues to attract investor attention even as market expectations around the Federal Reserve’s monetary policy start to shift. Last week’s robust employment report, followed by slightly hotter-than-expected consumer prices, forced markets to pare back expectations for aggressive rate cuts next month.

China’s National Development and Reform Commission earlier this week sorely disappointed the marketplace with a tepid statement on economic stimulus. Traders and investors await another update on Saturday, when China is expected to announce $283 billion of new stimulus measures, according to a Bloomberg survey. The majority of the funding expected to come from government bonds.