Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinSpot gold surged 1.6% to close above $2,042 as an escalation in Middle East tension stoked safe-haven demand and weak wholesale inflation fueled new bets that the Fed will pivot to rate cuts in March. The metal’s biggest one-day advance in a month lifted it to a weekly gain of 0.2%.

Combined forces of the US and UK launched a dozen air strikes against Iran-backed Houthi militants last night in retaliation for months of attacks on international shipping in the Red Sea. The move dramatically escalated tensions in the region, which have been simmering since the Israel/Hamas war began in early October.

Oil prices jumped more than 2.7% on concerns that an expanding conflict could disrupt supplies and production in the region. Gold often trades in sympathy with oil as a hedge against energy-related inflation.

US wholesale inflation unexpectedly fell in December, with the producer price index for final demand dropping 0.1%. It was the third straight month of wholesale disinflation, as the November PPI was revised to negative 0.1% after initially being reported as flat.

Widely considered a weather vane for future consumer inflation, three months of falling PPI indicates diminishing inflation in the pipeline. It also suggests the mild uptick in the December CPI is likely a one-off and not indicative of resurgent inflation.

Benchmark 10-year Treasury yield crept lower after the PPI print as traders raised their bets that the Fed will begin cutting interest rates in March. The Fed fund futures market is now pricing-in a quarter point decrease in March with 81% likelihood, up from 70% before the data.

Falling yields boost gold by decreasing the opportunity cost for holding it instead of bonds for safety.

The other precious metals were mixed for the day and lower for the week. Silver jumped 2.8% today but still slipped 0.3% this week. Platinum added 0.2% for a weekly loss of 5.2%. Palladium dropped 0.5% today and 5.6% this week.

At the New York spot close: gold gained $32.40 to $2,042.40; silver rose 63 cents to $23.16; platinum picked up $1.50 to $921.10; and palladium shed $4.50 to $978.50 an ounce.