According to the latest producer price index monthly report, which came out today, the PPI for finished goods tumbled down by 1% in May compared with April’s index.
This report serves as an indicator for the changes in the U.S core CPI to be published tomorrow, June 14th. This is the sharpest fall in a single month in the past twelve months. On an annual scale, the PPI rose by 0.7% during the last 12 months
During May the food index declined by 0.6% and the energy index tumbled down by 4.3%.
This means that most of the fall in the U.S PPI is attributed to the plunge of energy prices during last month.
On the other hand, the Producer Price index excluding food and energy edged up again by 0.2% during May 2012.
This PPI ex food and energy is estimated to have a lagged negative linear relation with gold price; i.e. as the PPI increases, gold price tends to fall the next day. Furthermore, the PPI excluding food and energy tends to have a positive linear correlation with silver rate. These relations are mainly via the movements in U.S dollar. If this relation will hold up in this month’s publication, the news of the U.S PPI ex food and energy slightly rising may adversely affect the path of gold price during next trading day (assuming all things being equal).
For more on this subject: