Gold futures are trading sharply lower on Tuesday after a report showing a surge in U.S. producer prices likely solidified the chances of faster Federal Reserve tapering and a sooner than expected rate hike.

The Fed is due to kick off its latest monetary policy meeting on Tuesday, in which it is expected to discuss speeding up the tapering of its bond-buying program. The meeting wraps up on Wednesday afternoon, and will be followed by a press conference with Fed Chairman Jerome Powell.

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At 14:46 GMT, February Comex gold futures are trading $1771.10, down $17.20 or -0.96%. Meanwhile, the SPDR Gold Shares ETF (GLD) is at $165.49, down $1.51 or -0.90%.

Producer Prices Rise 9.6% in November from a Year Ago, the Fastest Pace on Record

Wholesale prices increased at their quickest pace on record in November in the latest sign that the inflation pressures bedeviling the economy are still present, the Labor Department reported Tuesday.

The producer price index for final demand products increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.

Excluding food and energy, prices rose 0.7% for the month, putting core PPI at 6.9%, also the largest gain on record. Estimates were for respective gains of 0.4% and 7.2%, meaning the monthly gain was faster than estimates but the year-over-year measure was a bit slower.

Demand for goods continued to be the bigger driver for producer prices, rising 1.2% for the month, a touch slower than the 1.3% October increase.

Final demand services inflation ran at a 0.7% monthly rate, much faster than the 0.2% October rate and a sign that the services side could be catching up in prices after lagging through much of the recovery.Advertisement

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Today’s PPI report likely took away any doubt the Fed will begin ending the most aggressive easing policies ever put in place by the institution.

The price action in gold indicates that traders are now certain policymakers will gradually reverse central bank policy at its December 14-15 meeting and bring both a faster taper and quicker rate hikes over the next several years.

The first rate hike is now forecast for June 2022, a sharp recalculation from the September survey when the first rate move wasn’t expected until the end of 2022.

However, ending the Fed’s stimulus in March opens the door to perhaps an April rate hike.

Although both consumer and producer inflation could continue to climb the next several months, gold’s gains are likely to be tempered because of higher rate expectations. Furthermore, the U.S. Dollar could surge even higher over the near-term, which would further reduce demand for the dollar-denominated asset.For a look at all of today’s economic events, check out our economic calendar.

• Wholesale prices rose 9.6% from a year ago, the highest level going back to November 2010.
• The pace was even faster than the 9.2% estimate.
• The core producer price index increased at a 6.9% pace, a bit slower than estimates but still the fastest ever in records dating to August 2014.

WATCH NOWVIDEO06:52November producer price index rises 9.6%, sets new record

Wholesale prices increased at their quickest pace on record in November in the latest sign that the inflation pressures bedeviling the economy are still present, the Labor Department reported Tuesday.

The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%, according to FactSet.

Excluding food, energy and trade services prices rose 0.7% for the month, putting core PPI at 6.9%, also the largest gain on record. Estimates were for respective gains of 0.4% and 7.2%, meaning the monthly gain was faster than estimates but the year-over-year measure was a bit slower.

The Labor Department’s record keeping for the headline number goes back to November 2010, while the core calculation dates to August 2014.

Those numbers come with headline consumer prices running at their fastest pace in nearly 40 years and core inflation the hottest in about 30 years.

Demand for goods continued to be the bigger driver for producer prices, rising 1.2% for the month, a touch slower than the 1.3% October increase. Final demand services inflation ran at a 0.7% monthly rate, much faster than the 0.2% October rate and a sign that the services side could be catching up in prices after lagging through much of the recovery.

Stock indexes were mixed following the release, as investors see inflation and the strong potential for a Federal Reserve policy response as threats to what has been a boom year for equities.

The Fed begins its two-day meeting Tuesday, with expectations running high that it will remove its economic help more quickly and start raising interest rates around the middle part of 2022.

Fed officials for months had been insisting that inflation was “transitory” and closely tied to Covid pandemic-related factors that eventually would fade. However, in recent days Chairman Jerome Powell and others have indicated that word no longer is appropriate and likely will be dropped from future central bank communications.

Supply chain bottlenecks and surging demand have been the primary drivers of inflation, and have eased only marginally.

Final demand energy prices jumped another 2.6% in November despite sliding crude prices, while food was up 1.2%. Transportation and warehousing increased 1.9%, while portfolio management spiked 2.9%.

Elsewhere, iron and steel scrap prices surged 10.7%, and a host of others costs including gasoline, fruits and vegetables and industrial chemicals also increased. Diesel fuel costs were down 2.6% for the month, while chemicals and allied products wholesaling declined 1.3%.

NAMRATA