Hot PPI, Gold Seems Relentless

With the number of geopolitical risks happening at the moment, the markets appear to be taking a surprisingly calm stance. Recent chatter around renewed tariffs, coupled with a hotter-than-expected Producer Price Index reading, would normally spark volatility and lead to a decent risk-off. Yet, investor sentiment remains largely positive. Meanwhile, gold is seemingly seeing all news as good news while approaching a potential breach of the USD 3,000 mark.

Markets Shrug Off Tariff Talk

Recent discussions about trade tariffs, which historically unsettled global markets, are no longer causing the kind of selloffs once seen during the height of U.S.–China tensions. Despite occasional political posturing and headlines hinting at new or reinstated tariffs, risk assets have been remarkably resilient.

Possible reasons behind the calm include:

• Adaptation to Political Rhetoric: Markets have seen several tariff cycles in recent years. Trump also gained a bit of a “crying wolf” reputation during his last term, in which he would Tweet one thing, then the opposite a short time afterwards. Traders, having adapted, may perceive new threats as part of ongoing negotiations rather than immediate crisis triggers. Essentially, they are viewing them as potential bluffs until proven otherwise.
• Other positive data: Positive data in employment, corporate earnings, and consumer spending could be the counterbalance to concerns over any trade barriers.
• Diversified Global Supply Chains: Companies have taken steps to mitigate tariff impacts by diversifying supply chains and reducing the market’s sensitivity to such announcements. This diversification started during Trump’s first term and continued through Biden’s term. It’s been a process happening behind the scenes for a long time.

Hot PPI

Inflation has been potentially the most important word in finance since 2020. One of the most important metrics is the upstream indicator referred to as the Producer Price Index. A hotter-than-expected PPI number can signal future inflationary pressures as producer costs filter down to consumers. However, recent PPI figures that came in above forecasts did little to damage buyers.

Some analysts interpret the muted response as evidence that markets have already priced in a degree of inflation risk. After all, central banks worldwide have been vocal about their focus on inflation. While the Federal Reserve’s stance on rates and inflation remains a key determinant of market direction, investors appear confident that policymakers will prevent inflation from spiralling out of control (at least at the faster speed that Trump is asking for).

US$3,000 Gold Price?

Gold’s upward momentum has seemed to have shown no signs of abating. With prices approaching US$3,000 per ounce, traders wonder if this psychologically important level will soon become a reality.

Gold seems to win either way the data goes. If inflation is under control, then the Fed can print more money without worry, which will cause longer-term investors to pour money into gold to ride the wave of monetary debasement. If inflation seems out of control, then it means that gold could be a very good short-term trade to avoid current debasement and the potential risks of restrictive policies on the stock market.

Some Factors to Watch

Corporate earnings will continue, so expect any bad news to stimulate gold. The tariff threats will still have an impact if they get put into effect. Investors are waiting for action rather than talk. Of course, central bank buying will be the biggest factor – the people claiming to be fighting inflation caused the inflation by printing money and are buying tons of gold because they do not believe in their own statements.

 Whether this equilibrium holds, may hinge on the next wave of economic data and any unexpected geopolitical twists. For now, traders and investors alike are keeping a close eye on gold’s bullish streak and standing by to reassess should trade tensions or inflation prove more disruptive than currently anticipated.