Gold gains on haven demand

Gold gains on haven demand

Gold rose early Monday making gains on safe haven demand triggered by the expanding conflict in the Middle East. 

The yellow metal also got a boost from renewed speculation that the Federal Reserve will cut interest rates sooner rather than later following an unexpected drop in the producer price index for December, a key inflation report which came out Friday. 

Front-month gold futures rose $1.80 last week to settle at $2,051.60 an ounce on Comex after the February contract rallied 1.6% Friday. Comex electronic trading won’t settle Monday because of the Martin Luther King Jr. Day holiday in the U.S. Bullion gained 0.7% last month after rising 3.2% in November and increasing 6.9% in October. The metal rose 13% in 2023. The February contract is currently up $4.70 (+0.23%) an ounce to $2056.30 and the DG spot price is $2053.80.

Houthi rebels in Yemen fired an anti-ship cruise missile at an American destroyer in the Red Sea on Sunday, but it was shot down by a fighter jet. It was the first acknowledged military action by the Houthis since the U.S. and its allies launched strikes on the Houthis Friday following weeks of assaults on shipping in the Red Sea. The Houthis have said they are acting in solidarity with Palestinians amid Israel’s war against Hamas. The move was the latest sign that the conflict is spreading in the region.

Meanwhile, U.S. producer prices fell 0.1% in December from a month earlier in data released Friday by the Labor Department. The figure had been forecast by economists to rebound 0.1% The index has now fallen for three consecutive months. The PPI report came on the heels of the consumer price index, which rose more than forecast on a monthly basis, andl realigned some analysts thinking on the pace of when the Fed will begin cutting interest rates. 

The Fed has raised interest rates by 5.25 percentage points since March 2022 to curb inflation. The Fed closely watches both inflation and labor market data when determining monetary policy.

The CME FedWatch Tool shows that 95.3% of the investors it tracks are betting that the Fed will keep its federal funds rate unchanged at 5.25% to 5.50% in January, while 4.7% are expecting a 25 basis point cut, fewer than just a day earlier. But that changes in March, with the central bank widely expected to cut, with another reduction expected in May. 

Most U.S. economic reports due out this week are scheduled for the latter half of the week, following Monday’s holiday. Wednesday brings U.S. retail sales and industrial production for December, along with the Fed’s Beige Book report from the 12 regional banks on the state of the economy. Initial jobless claims and housing starts are due Thursday, followed by preliminary consumer sentiment for January on Friday. A number of Fed officials are also scheduled to speak throughout the week. 

Front-month silver futures rose 1.4 cent last week to settle at $23.33 an ounce on Comex after the March contract gained 2.8% Friday. Silver dropped 6.1% in December after advancing 12% in November and increasing 2.2% in October. It ticked up 0.2% in 2023. The March contract is currently down $0.049 (-0.21%) an ounce to $23.280 and the DG spot price is $23.17.

Spot palladium lost 5.3% last week to $989.00 an ounce after decreasing 0.5% Friday. Palladium advanced 8.6% in December after losing 9.5% in November and dropping 10% in October. Palladium plummeted 38% last year. Currently, the DG spot price is down $9.50 an ounce to $976.50.

Spot platinum lost 5.2% last week to $920.10 an ounce. It ticked up 60 cents Friday. Platinum rose 8.1% in December after falling 0.7% in November and gaining 3.5% in October. Platinum dropped 6.8% in 2023. The DG spot price is currently down $0.80 an ounce to $919.30.

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