Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold gained 0.5% to close at $1,475 as rising consumer inflation and lingering trade-war worries pushed investors into alternative stores of value. The metal then extended its gains in electronic trade after the Fed signaled interest rates will stay low at least through 2020.

As measured by the Consumer Price Index, inflation rose 0.3% in November behind higher prices for rent, healthcare and energy. The 12-month inflation rate rose to 2.1% from 1.8%, the high level in one year. Real, or inflation-adjusted, wages remained flat for the month. Gold is often bought as a hedge against loss of purchasing power due to rising consumer prices.

Meanwhile, White House trade advisers Larry Kudlow and Peter Navarro said new tariffs are "still on the table" as the deadline looms for a partial pact with China. If a deal is not stuck by Sunday, 15% tariffs will be levied on $160 billion in new Chinese imports in a massive escalation of the damaging trade war.

The Federal Reserve, as widely expected, left interest rates unchanged at its two-day meeting that ended today. After cutting rates three times since July, the central bank said, "the current stance of monetary policy is appropriate," with the benchmark rate at 1.5% to 1.75%.

Importantly, the Fed's new dot-plot shows rates will stay at current levels for all next year, with one hike possible for 2021. The Fed has said that it's willing to let inflation run hotter than its 2% target for an extended period to ensure growth in the economy.

Gold extended its gains after hours on the Fed's post-meeting statement, rising above $1,481. Higher inflation and low interest rates are bullish for gold because they contribute to an environment of negative real yields on Treasury bonds.

With inflation climbing above 2%, bond yields must be 2% or higher for investors to enjoy real returns (returns above inflation) on their investment. Nominal yields are pressured by low benchmark rates from the Fed. When they fall below the rate of inflation, real yields become negative. Negative real yields are good for gold because they eliminate the opportunity cost for holding the metal, which offers no yield itself but typically rises with inflation.

The other precious metals were also higher, with silver adding 0.9% while platinum and palladium rose 1.8% and 0.9%, respectively.

At the Comex close: February gold gained $6.90 to $1,475; March silver added 15 cents, to $16.85; January platinum picked up $16.90 to $939.50; and March palladium rose $16 to $1,885.10 an ounce.