Gold prices clung to gains above $4,150 an ounce on Thursday, staging an intraday recovery as a softer US dollar and retreating Treasury yields helped the metal absorb a fresh inflation shock. Spot gold traded near $4,156 an ounce, up 1.63% from the prior session, while December futures changed hands around $4,174.
The rebound followed a hotter-than-expected producer price report, which landed a day after an upside surprise in consumer inflation. Together, the two readings stoked concern that the Federal Reserve may need to keep borrowing costs elevated for longer, a backdrop that normally works against non-yielding assets such as gold.
Wholesale inflation accelerates
Data from the US Department of Labor showed the headline Producer Price Index rose 6.3% year over year in September, well above the 5.5% consensus estimate. On a monthly basis, the final demand index climbed 1.3%, more than double expectations and the largest increase since March 2022. The annual pace was the fastest since December 2022.
Core PPI, which strips out food and energy, advanced 0.7% for the month, lifting its annual rate to 5.0%. The breadth of the increases suggests price pressures remain embedded across the production pipeline, complicating efforts by businesses and policymakers to bring inflation to heel.
Fed policy in the spotlight
The PPI release came on the heels of September's Consumer Price Index, which also exceeded forecasts, with energy and transportation costs providing much of the upward push. With both consumer and wholesale inflation running hot, market attention has shifted to the Fed's next move and whether officials will sanction another rate increase.
One bank on Thursday projected a December hike and additional tightening early next year, arguing that rates are set to stay higher for longer. That view cuts against gold, since higher yields raise the opportunity cost of holding a metal that pays no income.
Yet the inflation-gold relationship is not straightforward. While persistent price growth can invite tighter policy and higher yields, it can also draw investors toward gold as a hedge against the economic fallout of prolonged inflation. The dollar's pullback and easing Treasury yields helped bullion recover on Wednesday, blunting some of the pressure from the latest data.
Support zone in focus
Gold still faces headwinds from systematic selling, according to TD Securities strategist Ryan McKay. He pointed to ETF inflows, central-bank buying and discretionary positioning as sources of meaningful support in the $4,000-$4,100 range. That band could become a key level to watch if selling pressure returns, with the durability of investment demand likely to determine whether the metal can extend its recovery.
How markets digest incoming economic data will also matter. Additional evidence of sticky inflation could reinforce expectations for higher rates, while further declines in Treasury yields and the dollar could help gold hold its gains. Despite the near-term uncertainty, Jefferies continues to forecast gold reaching $5,000 an ounce in 2027.
This article is for informational purposes only and does not constitute financial advice.
