Gold Weakens Even as US PPI Raises Concerns About High Inflation

Gold is trading bearish early on Monday as a stronger than expected PPI reading strengthened the US dollar and sent Treasury yields higher over concerns of an uptick in inflation. At the time of writing, GOLD is trading at a little above $1,739.

Producer prices across the US posted a stronger than expected increase during the month of March, rising by 1% as opposed to a 0.5% increase seen in the previous month and forecast by economists for the period. The surge in PPI raised expectations for inflation to jump higher across the nation as economic activity resumes, powered by massive stimulus programs and vaccine rollouts.

While gold is typically seen as a hedge against inflation, increasing concerns about a rise in prices in the coming months have been sending US Treasury yields to multi-month highs. This in turn has been exerting a downward pressure on the yellow metal prices as higher bond yields raise the opportunity cost of holding non-yielding bullion, making it less appealing as an investment.

However, the safe haven appeal of gold receives some support from recent cautious comments from Fed Chair Jerome Powell, who indicated that inflation and hiring activity could pick up in the coming months but reopening the economy too quickly could drive a resurgence in cases again. In addition, a rise in fresh coronavirus infections across some Asian countries, especially India, is also weighing on the market sentiment, heightening fears of more lockdowns and restrictions which could halt economic activity.