Unrest in Middle East Keeps Gold Gleaming

15 Jan 2024 , 09:59 AM

As bullion held onto safe-haven gains from heightened Middle East tensions and after U.S. producer prices data last week revived bets for an early rate decrease by the Federal Reserve, gold prices rose for a third straight day on Monday.

Spot gold was up 0.3% at $2,054.73 an ounce, having had its largest day rise since December 12.

At $2,058.70, U.S. gold futures increased by 0.4%. As Israel persisted in its aggressive onslaught against Hamas, the war entered its 100th day. Meanwhile, the Houthi militia’s promise of retaliation for American airstrikes on Yemen raised the possibility of further escalation in the Middle East.

Gold has always been seen as a secure store of wealth and tends to appreciate in unstable political and economic environments.

After data on Friday revealed that U.S. producer prices unexpectedly dropped in December, Treasury rates fell in response, increasing the likelihood of a Fed cut in March.

At its meeting on January 30-31, it is anticipated that the U.S. Fed would maintain its policy rate. The probability of rate decreases starting in March is 79%, according to financial markets.

According to LSEG’s interest rate probability software, IRPR, traders are wagering on an average of 166 basis points (bps) of Fed rate reduction this year, which is more than the 150 bps that they were wagering on Friday morning.

Interest rate reductions add to the allure of non-yielding bullion.

Policymakers risk a ‘see-saw’ inflationary spiral if they lower interest rates too fast, according to Atlanta Federal Reserve President Raphael Bostic.

The dollar index weakened 0.1% compared to a group of currencies, making bullion more appealing to holders of other currencies.

According to data released on Friday, COMEX gold speculators reduced their net long position by 31,228 contracts to 106,288 in the week that ended on January 9.

Spot silver increased by 0.5% to $23.29 an ounce, palladium by 0.7% to $982.38, and platinum by 0.9% to $913.45.

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