Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold dropped 0.8% to close under $1,827 after upbeat US jobless data and higher inflation reinforced the view that the Fed will continue to lift interest rates and keep them higher for longer. It was the metal's lowest finish in nearly two months.

Initial claims for jobless benefits unexpected fell by 3,000 to a seasonally adjusted 192,000, well below forecasts of 200,000. Combined with last month's blowout payrolls report, which showed 517,000 new jobs added by the US economy, the new data shows a labor market that's likely still too strong for the Fed.

In addition, inflation at the end of last year was stronger than initially thought. The Fed's preferred measure, the PCE price index, accelerated 3.7% in Q4 rather than 3.2%, as the Commerce Department originally reported.

In a separate report, GDP for the fourth quarter was revised lower, from 2.9% down to 2.7%. Consumer spending, which accounts for nearly 70% of the economy, grew at just 1.4%, down from the 2.1% in the initial report.

With inflation and the labor market stubbornly hot, the markets are now pricing in more rate hikes and a higher terminal rate. Prior to the recent payrolls report, a peak rate of 4.9% was expected in June. Now, Fed fund futures trading projects a peak rate of more than 5.3% in July.

Yesterday's release of the recent Fed minutes underscored the increasingly hawkish rate view, with almost all members advocating more rate hikes and a higher terminal rate.

Higher interest rates pressure gold in two ways. First, they lift bond yields, which weigh on gold by increasing the opportunity cost for holding it instead of bonds as a safe-haven asset. Second, they support a stronger dollar, which makes gold and other commodities more expensive overseas, curtailing demand.

The other precious metals were also lower, with silver falling 1.7% while platinum slid 0.8% and palladium tumbled 3.6%.

At the Comex close: April gold fell $14.70 to $1,826.80; March silver dropped 37 cents to $21.31; April platinum shed $7.80 to $945.50; and March palladium declined by $53.60 to $1,428.60 an ounce.