Gold prices surge on Middle East tensions, Federal Reserve rate-cut bets

Gold prices scaled a one-week peak on Friday as an escalation in the Middle East conflict fuelled safe-haven buying, while softer U.S. producer price inflation boosted bets that the Federal Reserve might cut interest rates sooner.

Spot gold was up 1% at $2,048.21 per ounce at 2:24 p.m. ET (1924 GMT), after climbing as much as 1.7% earlier in the session.

Bullion was mostly flat on the week, but extended its run above the $2,000 level to nearly a month. U.S. gold futures settled 1.6% higher at $2,051.60.

U.S. and Britain launched air strikes across Yemen in retaliation against Houthi forces for attacks on Red Sea shipping that the Iran-backed fighters cast as a response to the war in Gaza. Iran condemned the attacks, warning that it will fuel "insecurity and instability" in the region.

 

A rise in geopolitical risk is pushing gold prices up, and at the same time, the U.S. central bank may be getting ready to start moderating its restrictive monetary policy, said Bart Melek, head of commodity strategies at TD Securities.

The U.S. producer price index (PPI) data came in negative, which was also a significant catalyst for prices, Melek added.

U.S. producer prices unexpectedly fell in December amid declining costs for goods such as diesel fuel and food, suggesting inflation would continue to subside. However, data on Thursday showed U.S. consumer prices rose more than expected in December.

Traders see an 80% probability of an interest rate cut in March, according to the CME Fedwatch tool, compared with about a 70% chance seen before the PPI report.

Considered a safe haven, gold tends to gain during times of uncertainty, while lower interest rates also lift the appeal of the zero-yield asset.

Spot silver rose 1.9% to $23.20 per ounce.

Platinum lost 0.5% to $910.49, down for the second straight week. Palladium was down 1.3% to $975.51, falling for the third consecutive week.

 

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Kevin Liffey and Shounak Dasgupta)