PPI in gold trading

PPI (Producer Price Index) is a monthly US Bureau of Labor Statistics report on the prices domestic producers receive for goods and services. It is sometimes called wholesale inflation. Headline and core measures (excluding food and energy, and in some versions trade services) are published at 8:30 a.m. New York time, usually close to the CPI release.

How it applies to gold trading

PPI matters to gold mainly through its effect on rate expectations. Some PPI components, such as airfares, medical services and portfolio management fees, feed directly into the PCE price index the Fed targets, so economists use PPI to refine their PCE forecasts. A surprisingly hot PPI can raise Treasury yields and the dollar and push gold lower; a soft one can do the opposite.

PPI usually moves gold less than CPI or NFP, but when it lands the day after CPI it can confirm or reverse the CPI reaction. The economic calendar lists consensus forecasts; the surprise against consensus drives the move.

Worked example

Example (hypothetical numbers): consensus for core PPI is +0.2% month on month and the release shows +0.5%. Two-year yields rise 6 basis points, the dollar index gains 0.3% and gold falls from 4,020 to 4,004 within 20 minutes. A 0.30 lot long with a $12 stop at 4,008 would be stopped for a $360 loss.

A common mistake

Ignoring PPI because it is “less important” than CPI. Check the calendar for every 8:30 a.m. US release before holding a tight stop through it.

See also: CPI, PCE, Data surprise, Economic calendar.

Frequently asked questions