Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinExtending last week's 2.4% rally, gold futures rose another 0.4% to close near $1,878 as the dollar and Treasury yields receded further on expectations that the Fed will go slower in raising interest rates. It was the metal's highest finish in eight months.

Last Friday's US nonfarm payrolls revealed an economy still producing new jobs in December but at a slower pace. More important for the Fed in its battle against inflation, growth in wages slowed to an annualized 4.6%, which means the central bank is making progress in tamping down this potent driver of higher prices.

Separately, the ISM reported on Friday that the US services sector fell into contraction in December for the first time since the depth of pandemic closures in mid-2020.

These two data points led investors to speculate that the Fed will be less aggressive in its efforts to stifle inflation by slowing the economy for fear of triggering a recession. Fed fund futures trading now sees a 20% likelihood of a half-point hike at the February meeting, down from 32% a week ago and almost 50% in mid-December.

Benchmark 10-year Treasury yields retreated to a three-week low near 3.5% on the shifting rate outlook. Falling yields help gold by decreasing the opportunity cost for holding it instead of bonds as a safe-haven asset.

Tracking lower with yields, the dollar dropped 0.7% against major rivals, hitting a seven-month low against the euro. A weaker dollar supports gold by making it less expensive overseas.

Also helping gold, US benchmark WTI crude rose 1.4% to $74.80 on optimism that China's easing of Covid rules will increase demand. Gold often trades in sympathy with oil as a hedge against energy-related inflation.

The other precious metals were lower, with silver and platinum slipping 0.5% each while palladium lost 1.7%.

At the Comex close: February gold gained $8.10 to $1,877.80; March silver slid 11 cents to $23.87; April platinum dropped $5.70 to $1,098.60; and March palladium shed $31.30 to $1,775.40 an ounce.