Gold extended gains above $1300, led higher by gains in platinum and palladium. A modest pullback in the dollar, softer stocks, hints of inflationary pressures in the U.S. and rising geopolitical tensions are all helping to underpin the yellow metal.
Platinum is up more than 2% today, bolstered by supply concerns stemming from strikes in South Africa and economic sanctions against Russia. Palladium continues to trend higher as well, reaching levels not seen in nearly three-years.
U.S. PPI rose 0.6% in April, well above market expectations of +0.2%. The annual pace accelerated to 2.1% y/y; a huge jump from the 1.4% rate seen in March. It was the biggest monthly gain in producer prices in four-years, and the largest year-on-year gain in two-years.
John Butler of The Amphora Report suggested the PPI data confirm stagflation:
USA Today quoted Bank of Tokyo-Mitsubishi economist Chris Rupkey as saying, “Inflation is back and this can only mean one thing. Slack in the economy is evaporating more quickly now as the economy gets closer to full employment.” Mr. Rupkey went on to say, “Bet on it. Inflation isn’t dead. We found some in today’s PPI report.”
I would hasten to add that if you’re anticipating the inflation the Fed has been trying to stoke for the past six-years is about to take hold, you should also be staking out a position in gold. I remind you of the quote from our own Mike Kosares just last week:
“Spikes in the inflation rate tend to come unannounced and seem to come out of nowhere. The grocery store is probably a better and more immediate indicator of where we are headed than the hedonically impaired BLS consumer price index. So when you are checking out that grocery cart think USAGOLD.”
The inflation seen at the producer level is in fact largely the result of a surge in wholesale food prices. The folks at the ZeroHedge remind us that the last time food prices spiked by this much in one month, it launched the “Arab Spring”, which toppled governments across North Africa and the Middle East.
The Fed should be careful what they wish for.
Tensions in Ukraine remains elevated. While new talks seeking to mitigated the conflict are slated to begin in Kiev, the pro-Russian separatists are unlikely to attend.
Russia appears to be retaliating for U.S. sanctions by hobbling U.S. space missions. Russia plans to deny the U.S. access to the International Space Station after 2020 and stop the sale of critical Russian-made rocket engines.
Additionally, new anti-Chinese violence has erupted in Vietnam over a territorial-waters dispute. China also has ongoing territorial disputes with Japan and the Philippines.