Flight-to-Safety Buying Drives Gold to a Two-month High

December Comex Gold futures rose on Thursday for a third straight day, hitting a two-month high as investors continued to react to an additional exchange of threats by the United States and North Korea. The news drove investors out of risky assets and into safe-haven assets like gold, U.S. Treasurys and the Japanese Yen.

According to reports, North Korea said it was completing plans to fire four intermediate-range missiles over Japan to land near the U.S. Pacific island territory of Guam.

 

So far it’s just been a war of words between the U.S. and North Korea so the rally has just been a normal reaction to the possibility of a geopolitical event. Speculative buying is expected to increase if the situation escalates to military action.

Also adding support to gold was disappointing U.S. economic data which reduced the chances of a U.S. Federal Reserve interest rate hike later this year.

Economic News

U.S. producer prices unexpectedly fell in July, pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase. U.S. PPI came in at -0.1%, below the 0.1% forecast and previous read. Core PPI was also down 0.1%, missing the 0.2% estimate.

Weekly Unemployment Claims rose unexpectedly by 224K. Traders were pricing in a read of 240K.

On Thursday, Federal Reserve Bank of New York President William Dudley offered a positive outlook for the U.S. economy, job market and inflation, saying better conditions would help support the most vulnerable Americans.

Dudley also cautioned that “it’s going to take some time” for inflation to rise to the central bank’s 2 percent target even as he offered a generally positive outlook for the U.S. economy, job market and price pressures.

“I do think I expect inflation to also start to move higher in the medium term but probably not get all the way back to 2-percent on a year-over-year basis, because, remember, we’ve had these very weak inflation readings for a number of month,” Dudley said. “So we’re not going to get to a year-over-year number of 2-percent until some of these very low readings drop out of the statistics 6 to 10 months from now.”

Crude Oil

Crude oil prices fell on Thursday, on concerns of lingering global oversupply as Russia considered a future output resumption and OPEC boosted its July production numbers.

According to Russian oil producer Gazprom Neft, it is “economically feasible” to resume production in mature fields after a global agreement among OPEC and non-OPEC expires, a representative of the company said.

In other news, OPEC said its oil output rose by 173,000 barrels per day (bpd) in July to 32.87 million bpd, led by the exempt producers plus top exporter Saudi Arabia, citing figures it collects from secondary sources.