The U.S. Dollar Index fell 0.3% on the session, making dollar-denominated assets like silver and gold more attractive to foreign buyers. This helped fuel a short-covering rally in both metals, with gold benefitting slightly more due to broader safe-haven interest following the latest macroeconomic readings. Lower-than-expected wholesale inflation further pressured the dollar, increasing the appeal of non-yielding metals.
The producer price index (PPI) declined 0.5% month-over-month in April, well below the 0.3% increase forecast by economists. Core PPI, excluding food and energy, also surprised to the downside, falling 0.4%. This was the steepest drop in services prices since the dataset began in 2009, led by a 1.6% decline in trade services and a 6.1% drop in margins for vehicle and machinery wholesalers.
Fed Chair Jerome Powell delivered remarks Thursday that tempered expectations for a return to ultra-low interest rates. While inflation expectations remain anchored near 2%, Powell warned that persistent supply shocks could keep long-term real rates higher. His comments were measured but reinforced the Fed’s reluctance to ease aggressively in the near term, even as markets continue to price in 50 basis points of rate cuts beginning in October.
Though Powell did not announce policy changes, traders interpreted his remarks as a signal that the rate environment will stay tighter than the pre-2020 norm. Gold, which tends to benefit from falling rates, initially lost ground but reversed higher as traders recalibrated expectations in light of the weak economic data.
Retail and Manufacturing Data Add to Uncertainty
Retail sales rose just 0.1% in April, matching estimates but showing a sharp deceleration from March’s 1.7% gain. Core retail sales also undershot expectations, increasing 0.1% versus a 0.3% forecast. Meanwhile, the Empire State Manufacturing Index fell to -9.2, while the Philadelphia Fed index rose to -4.0, still in contraction but well off the prior -26.4 level. Initial jobless claims held steady at 229,000.
