- Data revealed a slowing in the increase in producer prices last month.
- Last week saw a greater-than-expected increase in the US’s number of people submitting new claims for unemployment benefits.
- Consumer prices in the United States hardly increased in March as gas prices fell.
On Thursday, gold rose when additional negative US data supported predictions of a pause in Fed rate hikes. There were also fears of a mild recession which sent investors scrambling for safe-haven assets.
The dollar and Treasury yields fell after data revealed a slowing in the increase in producer prices last month and an increase in unemployment claims. This news indicated that the Federal Reserve’s relentless tightening over the previous year was hurting the economy.
US producer prices unexpectedly fell in March as the price of gasoline dropped, and there were signs that underlying producer inflation was slowing down.
The Labor Department reported a 0.5% decrease in the producer price index for final demand over the previous month.
The PPI rose 2.7% in the previous 12 months, ending in March. This increase followed a 4.9% spike in February and was the lowest yearly increase since January 2021.
Last week saw a greater-than-expected increase in the US’s number of people submitting new claims for unemployment benefits. This news proved that the labor market was cooling as higher borrowing prices slowed demand.
However, it is unlikely that the labor market or inflation will slow down quickly enough to prevent the Federal Reserve from hiking interest rates once more next month.
These economic indicators have supported the market’s belief that the cycle of interest rate increases is nearing an end. It makes gold appealing to investors since it doesn’t generate interest itself.
Additionally, consumer prices in the United States hardly increased in March as gas prices fell, but persistent rents kept underlying inflation pressures high.
From High Ridge Futures, David Meger states, “That’s an underlying favorable scenario for gold where the Fed is done with its rate increase cycle, yet overall inflation remains higher than they would like.”
US Fed minutes released on Wednesday showed that some policymakers contemplated halting rate rises. They also forecasted that recent stress in the banking industry would push the economy into recession.
In times of financial or economic instability, safe-haven gold typically gains, and lower rates further increase the allure of the zero-yield commodity.