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Before today, gold prices had risen by around 5.5% this week, the precious metal’s best performance since March. Ben Bernanke’s remarks on Wednesday evening, when he firmly suggested that the Fed would remain highly accommodative ‘for the foreseeable future’, suddenly made gold’s appeal a little more lustrous, as investors guessed that stimulus might continue for longer, debasing the value of the dollar.
Today, though, we saw the Producer Price Index rose in June by a greater amount than had been expected by analysts. Rising prices at the wholesale level could well translate into inflation heating up at the consumer level, which would certainly be a cause of concern at the Fed. ‘Core’ PPI, though, which excludes the volatile components of food and energy, remains more subdued at just 0.2%. We saw a sharp fall in April, followed by a moderate rise in May, so the overall trend still remains to be determined.
Charles Plosser, the President of the Philadelphia Fed, said today that he would like tapering of the Fed’s stimulus to begin in September. These comments have helped push the US dollar higher, and that is pressuring the price of gold today. Spot gold was trading down by 0.4% at $1280 per troy ounce by mid-afternoon in New York.
Expectations that the Fed will begin to scale back its asset purchases later this year have contributed to gold’s decline of 24% so far this year.