According to the latest producer price index monthly report, which was published today, the PPI for finished goods changed direction and edged down by 0.2% in October compared with September’s index.
This report serves as an indicator for the changes in the U.S CPI to be published later this week. This is the first month in the past five months in row in which the PPI declined. Last month, the PPI rose by 1.1%. On an annual scale, the PPI increased by 2.3% during the past 12 months.
During October, the food index rose by 0.4%; alternatively, the energy index declined by 0.5%. Thus, the main reason for the fall in PPI was the fall in oil price.
Moreover, the Producer Price index excluding food and energy also edged down by 0.2% during October 2012.
This PPI ex food and energy is estimated to have a lagged negative linear correlation with gold price; i.e. as the PPI falls, gold price tends to rise the next day. On the other hand, the PPI excluding food and energy tends to have a positive linear correlation with silver price. These relations are mainly via the changes in U.S dollar. If this relation will hold up for this month’s publication, this news is likely to have a modest effect on the prices of precious metals.
Currently (as of 20:30 GMT), the prices of gold and silver are slightly rising; the major stock indexes, such as Dow Jones, NASDAQ and S&P500 are sharply falling; the Euro/USD is modestly increasing.
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