Gold ETF Slides Over 5% as U.S. Producer Inflation Surprises, Fueling Fed Rate Hike Expectations

The leveraged gold ETF, CSOP Gold 2x Leveraged ETF (07299), fell more than 5%. As of writing, it was down 5.42% to HKD 27.2, with a turnover of HKD 30.14 million. The spot gold price has declined for three consecutive sessions as of May 14, pressured by a stronger U.S. dollar and Treasury yields. Huatai Futures analysis notes that U.S. Producer Price Index (PPI) for April rose 6% year-over-year, the highest level since December 2022, while core PPI increased 5.2% year-over-year, both significantly exceeding market expectations. Rising energy and transportation costs contributed to services inflation reaching a four-year high. The unexpected surge in PPI inflation has heightened expectations for the Federal Reserve to resume interest rate hikes, with market pricing now indicating roughly a 50% probability of a 25-basis-point increase within the year. Notably, Fed Chair Jerome Powell's 8-year term officially ended on May 15. The U.S. Senate confirmed Kevin Warsh as the new Fed Chair on May 13 with a 54-45 vote, for a 4-year term. Warsh had previously been approved as a Fed Governor on May 12, with a 14-year term. Deutsche Bank analysts point out that historically, there is a long-held perception that new Fed Chairs often face market turbulence shortly after taking office, although the actual data presents a more complex picture.