Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

Austin— With markets reopened after the New Year holiday, gold gained 0.9% to close at $1,162, the highest level since mid-December, as investors continued last week's shift toward safe havens despite ongoing strength in the dollar. The metal finished last week 1.5% higher, notching an 8% gain for the year, while silver slipped 2.4% for the week but still gained 14% in 2016.

The dollar rallied 1.4% to nearly a 15-year high against major rivals, fueled by upbeat U.S. manufacturing and construction data. The ISM reported national factory activity rose in December by 1.5% to its highest level in two years, with new orders rising more than 7%. Construction spending rose to more than a 10-year high in November, per the Commerce Department.

Improvement in these two key sectors prompted the Atlanta Fed to increase its forecast for GDP growth in Q4 to 2.9% from 2.6%, although the strength of the dollar is likely to impede sustained manufacturing growth by making U.S. exports more expensive.

After rising more than 10% since last summer, the buck closed out 2016 3.6% higher for its fourth straight year of gains. The election of Donald Trump supercharged the currency, pushing it 6% higher since early November, largely on expectations that his campaign promises to rebuild infrastructure while slashing taxes and regulations will balloon the national debt and stoke inflation, prompting the Fed to accelerate the pace of rate hikes in 2017.

A rising dollar typically weighs on gold and other commodities denominated in it for international trade by making them more expensive overseas. Gold has bucked this trend recently as investors seek out hedges against higher inflation and insurance against global instability.

In a Bloomberg survey of 26 global market analysts conducted last week, more than two-thirds are bullish on gold in 2017. Prices are projected to rise 13%, with a median year-end forecast of $1,300 and a peak of $1,350. The outlook was fueled by rising risks on multiple fronts beyond inflation, including a possible trade war with China, fallout from the Russian hacking of the U.S. election, complications in the UK stemming from Brexit, and uncertainty about the future of the European Union itself, given the rising tide of anti-Union sentiment and far-right nationalism in Europe.

Strong data from China also supported gold and other commodities today, with manufacturing expanding for the fifth straight month, according the official PMI report. Rising growth in the world's second-largest economy supports demand for gold as the Chinese middle class expands and seeks safe-havens for new-found wealth. The data helped fuel stock market gains in Asia and Europe.

The other precious metals also finished higher, with silver rising 2.3% while platinum and palladium jumped 4.3% and 3.9%, respectively.

At the Comex close: February gained $10.30 to $1,162; March silver rose 42 cents to $16.41; April platinum climbed $38.50 to $944.20; and March palladium added $26.65, to $709.90 an ounce.