Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold gained 0.2% to close near $2,017 as Treasury yields dipped after GDP data showed a vigorous economy with subsiding inflation, boosting alternative assets.

The US economy grew a robust 3.3% in the fourth quarter, handily beating forecasts of around 2%, behind strong spending by American households. Consumer spending, which accounts for 70% of economic activity, grew by 2.8%. Business investment, the next-largest segment, grew 2.1%.

Notably, inflation rose at just 1.7% in Q4, down from 2.6% in Q3, pulling the annual rate down to the Fed’s 2% target. Tomorrow’s release of the December PCE index, the Fed’s preferred inflation measure, will give further evidence of the state of inflation.

Benchmark 10-year Treasury yields pulled back slightly as traders speculated that easing inflation may keep the Fed on course for lowering interest rates in coming months. Falling yields support gold by decreasing the opportunity cost for holding it instead of bonds for safety.

The Fed’s initial rate reduction is now expected in May rather than March. Fed fund futures traders place the odds of a quarter-point May cut at nearly 90% while March stands around 47%. But the markets continue to price in five or six cuts totaling 1.25% to 1.5% by December.

Also supporting gold, first-time jobless claims jumped by an unexpected 25,000 last week to 214,000, suggesting that the labor market is cooling despite the solid GDP growth to end the year.

Capping the metal’s rise, the dollar added 0.3% against major rivals after the euro retreated on hawkish comments from ECB President Christine Lagarde, who said it is “premature to discuss rate cuts” for the eurozone. A rising buck creates headwinds for gold and other commodities by making them pricier overseas.

The other precious metals were mixed, with silver adding 0.2% while platinum and palladium fell 2.2% and 3.2%, respectively.

At the New York spot close: gold gained $3 to $2,016.90; silver added a nickel, to #+$22.81; platinum shed $20.40 to $894.50; and palladium retreat by $30.80 to $942.90 an ounce.