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Gold and Silver Investors Watch Core PPI Fall


Gold and Silver Investors Watch Core PPI Fall

October 15, 2012 The recent rally in gold and silver kicked off with the speculation on the third round of Quantitative Easing, gathering a great deal of steam after the announcement of the monetary stimulus. Additionally, the announcement of a bond-buying program by the European Central Bank has fueled the rally in precious metals and leant technical strength to bulls in the market.

Precious metals investors are also taking notice of how the market reacted to the recent announcement of the Producer Price Index data by the U.S. Bureau of Labor Statistics.

The BLS releases separate PPI numbers for finished goods, intermediate goods, and crude goods. Core PPI numbers, the highly volatile indication of future inflation, dropped following the announcement of QE3. Core PPI numbers do not include food and energy, which is a significant locus of price inflation in the current market.

Gold and silver investors are traditionally concerned about inflation in currency or the effect of negative market events on the purchasing power of currency. The current drop in the PPI numbers do not indicate, per the construction of the report, inflation in the currency.

The effect of the monetary easing, of course, will not be immediately felt in markets. Particularly the structure of QE3, which is different from QE1 and QE2, does not indicate an immediate effect of inflation in the form the precious metals markets are accustomed to.

QE3 entails the purchase of Mortgage Backed Securities by the Federal Reserve, which is not a purchase of goods with no value in return. Mortgage Backed Securities do have a value on the open market, and though they are being purchased by the central bank in a monetary easing policy, it is not the same structure as previous versions of easing and the inflationary aspect will be different.

Investors looking for short-term speculation, fast momentum, and easy gains on Quantitative Easing look to be taking profit after the recent rally, though the structure of the program has made the curve slightly different in this round.

After the release of the PPI data at 8:30 am Eastern, which indicated a drop in the Index and less evidence of inflation in consumer goods, gold and silver began picking up in trading, possibly on investors following the momentum in markets.

Selling in precious metals markets accelerated as prices dropped through a key support level near the late September low at $1,737.50 per troy ounce.

The spot price of gold was 1 percent lower to $1,735 per troy ounce. 

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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