Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinExtending last weeks 1.8% rally, New York spot gold gained another 0.9% to close at a fresh record high of $2,438.50 despite mild upticks in yields and the dollar as investors continue to bet that a slowing US economy and cooling inflation will induce the Fed to reduce interest rate this year. Silver surged 3.7% to $32.21 an ounce.

Recent US data has revealed a significant slowing in the economy, changing the calculus for rate cuts. The Conference Boards index of leading economic indicators tumbled 0.6% in April. Retail sales were flat and consumer sentiment plunged, suggesting consumer spending, the engine of GDP, is on the wane. And GDP came in at just 1.6% during Q1.

With the economy facing new headwinds, US payrolls rose by a scant 175,000 jobs in April and consumer inflation cooled off, with the 12-month CPI ticking down to 3.4% after several months of higher readings.

Its all come together to drive investors back into gold as a safe-haven asset and hedge against falling interest rates. Fed fund futures traders now put the odds of an initial rate reduction of 25 basis points in September at around 70%, down from less than 50% two weeks ago, with a second cut by year end.

Falling rates support gold by lowering yields and weakening the dollar. The former supports gold by decreasing the opportunity cost for holding it instead of bonds for safety. The later boosts gold and other commodities by making them expensive in other currencies, spurring overseas demand.

Platinum fell 2.4% while palladium rose 2.1%.

At the New York spot close: gold gained $21.10 to $2,438.50; silver surged $1.16 to $32.21; platinum dropped $26.30 to $1,063.70; palladium added $20.80, to $1,031.60 an ounce.