© Reuters.
Investing.com — Gold prices rose on Friday as the escalation of the Middle East crisis increased safe-haven demand, which also helped the yellow metal rise despite stronger-than-expected US inflation data.
US and British forces launched a series of strikes against the Iran-aligned Houthi group in Yemen in response to the group’s attacks on ships in the Red Sea. The move also represents a widening of the war between Israel and Hamas, which has been seen as a major driver of recent Houthi aggression.
The move increased demand for safe-haven gold, given that heightened geopolitical risks usually push investors towards more traditional havens. This also helped bullion prices rise despite the strong US inflation reading.
The price of gold rose 0.3% to $2,034.78 per ounce, while the February expiration price rose almost 1% to $2,038.80 per ounce by 00:14 ET (05:14 GMT).
US inflation surprised by rising, but bets on interest rate cuts remain
While gold prices saw some strength on Friday, they are still poised to end the week slightly lower, amid uncertainty over the path of US interest rates.
Data on Thursday showed that U.S. inflation rose slightly more than expected in December, which, combined with recent flexibility in the labor market, gives the Federal Reserve less incentive to start cutting interest rates early.
But traders appear to have largely maintained their bets on early interest rate cuts by the Fed, at least according to the Fed’s report. The tool showed that traders are pricing in a more than 70% chance of a 25 basis point cut in March, up from the 64% chance seen before the CPI data.
ING analysts said the trend “simply looks wrong,” while several Fed officials also stressed that bets on early interest rate cuts were overly optimistic. While the central bank is still expected to cut interest rates at the end of this year, the timing of the move will be conditional on easing inflation and cooling the action space.
The dollar found little support after the Consumer Price Index reading, which helped keep gold prices stable. The yellow metal is also expected to benefit from a low interest rate environment, since higher rates increase the opportunity cost of investing in bullion.
Copper prices are stable, but China imports are weakening
Among industrial metals, copper prices saw some strength on Friday, but suffered losses for the week amid concerns about China, the largest importer.
Futures contracts expiring in March rose 0.2% to $3.7988 a pound, and fell 0.2% this week — the third straight week in the red.
Chinese economic data provided somewhat mixed signals for markets. It rose slightly while growing more than expected in December, showing some green shoots in the world’s largest copper importer.
But China’s copper imports fell in December, amid rising inventory levels and increased domestic production of the metal.
Concerns about slowing demand for copper, especially with the weakness of the Chinese economy, have been a major pressure on copper prices in recent weeks.
The focus now turns to China’s fourth-quarter data due next week.
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