Gold Price Prediction – Gold Drops Following Hot PPI Report

Gold prices tumbled following a hotter than expected producer price index, as yields in the US moved higher. The dollar gained traction against the Euro which paved the way for lower gold prices. The risk off trade that ensured on Friday did little to help gold prices gain traction.

Technical Analysis

Gold prices dropped on Friday pushing down to support near the 50-day moving average at 1,209. A break of this level would lead to a test of the September lows at 1,184.  Resistance on the yellow metal is seen near the 20-day moving average at 1,226. Momentum is negative as the MACD line recently generated a crossover sell signal. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices. The fast stochastic also recently generated a crossover sell signal. The index is pointing downward and reflects accelerating negative momentum.

Producer Prices Where Hotter than Expected

The Producer price index came in stronger than expected according to the Labor Department. The PPI index surged 0.6% in October following a smaller than expected 0.2% gain in September. Expectations were for headline PPI to rise by 0.3%. Producer prices increased 2.9% year over year.  The core PPI which excludes food and energy came in at 0.5% in October and increased 2.6% year over year, which was also stronger than expected.

The increase in producer prices comes following last Friday 3.1% year over year increase in wages. This was the fastest increase in wages in more than a decade. The Federal Reserve is keeping a close eye on price changes as it monitors the economy for signs of overheating. The unemployment rate is at a five-decade low of 3.7% and companies are raising wages and salaries to attract and keep workers. The tight labor market will continue to push wages higher unless the Fed starts to accelerate its interest rate hikes.