Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinNew York spot gold rocketed 1.9% higher to close at a new record near $2,499 as Treasury yields and the dollar softened on the conviction that the Fed will cut rates soon. Safe-haven inflows because of geopolitical turmoil in the Middle East and Ukraine also helped the metal to a 2.8% gain this week. Silver added 1.8% to finish at $28.85, scoring a weekly rise of 5%.

Recent data releases have all but confirmed that a pivot in Fed policy is close at hand. Consumer and wholesale inflation have trended lower for nearly six months, with the CPI for July dropping the rate of inflation to 2.9%, the lowest in more than three years. The labor market is no longer overheating, with just 114,000 jobs added in July, lifting the unemployment rate to 4.3%.

As a result, Fed fund futures traders are pricing in a quarter-point rate cut in September with 100% certainty. The only real question is how much further the Fed cuts by the end of the year. CME FedWatch puts the odds of at least another half-point cut by December also at 100%, with the odds of a full 1% cut from todays level at more than 60%.

Benchmark 10-year Treasury yields fell back to 3.9% on the rate view while the dollar dropped 0.5% against major rivals.

Meanwhile, although the US economy is clearly weakening, data this week suggest that a recession isnt nigh. Retail sales jumped 1% in July, the biggest increase in 18 months. And consumer sentiment rose for the first time in four months, according to the University of Michigan survey. Consumer activity accounts for 70% of GDP.

This combination of anticipated monetary easing and a resilient economy is proving especially bullish for gold in its dual roles as currency and commodity.

Falling interest rates lower Treasury yields, thereby reducing the opportunity cost for holding gold instead of bonds. Likewise, a weaker dollar makes gold and other commodities cheaper in other currencies, boosting demand overseas. And relief that the economy may realize a soft landing is increasing risk appetite, in turn stimulating commodity demand for precious metals.

Beyond these macroeconomic tributaries to golds record rally, global turbulence is driving demand for safe havens. Ukrainian troops have pushed into Russia, raising fears of an overreaction from Putin, and the Gaza war is threatening to expand into a wider conflict involving Iran.

Platinum edged down 0.3% today but still rose 3.5% this week. Palladium added 0.7% today and 6.5% this week.

At the New York spot gold: gold rallied $45.50 to $2,498.60; silver surged 50 cents to $28.85; platinum dipped $2.70 to $962.40; and palladium picked up $6.70 to $943.60 an ounce.