Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinExtending last week's 2.5% rally, gold added 0.2% to close at $1,216 as the dollar fell on a US-Mexico trade pact and dovish comments from Fed Chair Jerome Powell.

Trade negotiations between the US and Mexico have reportedly reached a breakthrough, putting pressure on Canada to join in scrapping NAFTA for a new arrangement on North American trade. The deal increases the regionally-made content of autos and the wages of auto workers in Mexico, among other provisions.

The dollar fell 0.5% against major rivals as the deal boosted risk appetite. Losses were sharper against the peso, which rallied more than 1% on optimism that improved trade relations with the US will support economic growth in Mexico.

The buck was already under pressure after Fed Chair Jerome Powell's dovish speech on Friday. Addressing his global peers at the central bankers' summit in Jackson Hole, Powell underscored his preference for a slow and careful approach to rate hikes, saying low unemployment is no longer a reliable indicator of future inflation. He also suggested that the so-called neutral rate is nearly at hand, where growth and risk are properly balanced and further tightening is no longer needed.

Separately, a study released the San Francisco Fed reinforces the view that rate hikes may soon end. The analysis concluded that so-called flattening of the yield curve, in which long-term and short-term borrowing costs are roughly the same, signals a heightened risk of recession. Several Fed members recently cited the flattened yield curve as a reason to stop raising rates. This study supports that view.

Capping gold's gains, global equities rose on the deal's announcement, with the Dow and Global Dow both gaining 1%. The markets largely shook off a report that the Chicago Fed's national index of economic activity slowed in July because of weaker factory output.

The other precious metals were also higher, with silver rising 0.4% while platinum and palladium picked up 1.9% and 14%, respectively.

At the Comex close: December gold gained $2.70 to $1,216; September silver added 7 cents, to $14.86; October platinum climbed $14.80 to $804.20; and September palladium picked up $13.30 to $941.90 an ounce.