Inflation Data, Syria Tensions Send Gold Higher

April 11th, 2018 by

Spot gold jumped on Wednesday, rallying nearly 1% (+$13) to $1,352/oz, a two-week high.

Most analysts attributed the rally to rising tensions in Syria and the latest inflation data in the U.S.

Each of the other precious metals added about 0.9%. Spot silver gained 16¢ to trade above $16.70/oz. Platinum and palladium were roughly trading at $935/oz and $955/oz, respectively.

COMEX futures for gold and silver were up 0.4% yesterday. It was the third straight winning session for gold futures, which closed at $1,345/oz.

Tough Talk on Syria Blunts Stock Rally

Wall St rallied on Tuesday, rising by about 2%. However, markets were hesitant on Wednesday amid a possible escalation of the conflict in Syria.

President Trump directly warned Russia that missiles “will be coming” if they continue to support the Assad regime, which has a history of using chemical weapons on Syrian rebels.

The president followed this bellicose statement with arguments in favor of rapprochement with Russia. He characterized current relations between the two countries as “worse now than it has ever been, and that includes the Cold War.”

Traders sold into the uncertainty over possible military strikes in Syria. U.S. indices were off modestly at the opening bell.

Stocks in Asia were mixed overnight. European shares mirrored their American counterparts, stumbling about 0.5%.

Markets also responded negatively to a disappointing report on inflation. The consumer price index (CPI) fell for the first time in 10 months.

According to the Labor Department, CPI was still 2.4% higher year-on-year, but dipped 0.1% during March.

Core CPI, which doesn’t include more volatile categories like food and fuel, actually rose 0.2% last month.

Central Banks Brace for New Trade Policies

Markets will also be awaiting the release of the minutes from the March FOMC meeting this afternoon. The Fed has thus far stuck to its projection for two or three more interest-rate hikes by the end of the year.

The euro moved higher to $1.237 on indications that the European Central Bank (ECB) could bring its bond purchases (i.e. quantitative easing) to an end in 2018, as well.

This had only a muted effect on the dollar. The DXY index held steady at 89.5 this morning.

The Japanese yen also gained 0.25% but the British pound was largely flat.

In other central banking news, the governor of the People’s Bank of China echoed President Xi’s assurances that the country is committed to opening up its markets to global investment. Governor Yi Gang made the comments at the Boao Forum for Asia, but emphasized that changes would be gradual.

Treasurys saw fresh demand as the 10-year T-note yield traded three basis points lower at 2.77%.

Most commodities also rose on Wednesday. Both crude oil benchmarks rose 1% after prices jumped as much as 3.5% yesterday.

The rally is possibly influenced by the turmoil in the Middle East. Brent crude saw its highest settlement in more than three years. Brent traded near $71.75/bbl this morning while WTI crude was around $66.25/bbl.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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