In a notable rally, gold experienced its most significant surge in a month, propelled by a combination of soft US producer prices and escalating geopolitical tensions. The unexpected fall in US producer prices for the third consecutive month heightened expectations of imminent interest-rate cuts. Simultaneously, US-led airstrikes on Houthi rebel targets in Yemen intensified haven demand for the precious metal.
According to data from the Labor Department on Friday, prices paid to US producers declined in December, signaling limited inflation at the wholesale level. This unexpected development contributed to a weakening of Treasury yields and the dollar. Additionally, the Houthi response to the airstrikes, as mentioned by senior political leader Mohammed Ali Al-Houthi, indicated an imminent escalation in the Middle East situation.
These factors collectively led to a substantial 1.6% intraday jump in bullion, marking its most significant increase in a month. Gold, known for its role as a safe-haven asset during times of geopolitical and economic uncertainty, experienced heightened demand amid the US-led airstrikes and interest-rate cut expectations.
The relationship between gold and interest rates played a pivotal role in this surge, as bullion tends to climb when interest rates are lowered. Despite recent fluctuations in daily prices, gold has maintained levels above $2,000 per ounce since December 13, driven by anticipations of a monetary easing shift by the US Federal Reserve.
While the latest US economic data suggests challenges for policymakers aiming to control inflation, market focus appears to be on the timing and scale of the Federal Reserve’s move toward lowering borrowing costs.
The geopolitical landscape further contributed to gold’s upward trajectory, with the US and UK launching approximately 70 airstrikes on Houthi targets in Yemen. This military action aimed to thwart shipping attacks by the Iran-backed group in the Red Sea. Despite the airstrikes, the Houthis remained undeterred, expressing their determination to continue targeting commercial vessels and expanding their campaign.
Nicky Shiels, Head of Metals Strategy at MKS PAMP SA in Geneva, highlighted, “Gold has responded to the increase in tensions, which clearly indicates that the West is slowly being drawn into the Middle East conflict. It’s another added support to gold.”
As of 10:36 a.m. in New York, gold reached $2,055.49 per ounce, marking a 1.3% increase in response to these multifaceted developments.
