- Gold peaks at $1,554.00/oz., the highest since early September.
- Dismal economic data and Mideast tensions drive demand for safe havens.
- Dow Jones plunges triple digits, more than halving Thursday’s impressive rally.
The price of gold extended its New Year rally on Friday, reaching its highest level in four months on the back of dismal economic data and escalating tensions in the Middle East.
Gold Rallies; Silver Follows
February gold futures rallied $25.90, or 1.6%, to $1,554.00 a troy ounce on the Comex division of the New York Mercantile Exchange. That was the highest level since Sept. 4.
Bullion’s month-long uptrend has seen price action follow a strongly linear pattern back towards six-year highs. Since bottoming near $1,460 in early December, the yellow metal has recovered more than 6%.
Silver followed a similar trajectory as gold, gaining as much as 1.6% in New York trading. The grey metal was last up 0.6% at $18.15 a troy ounce.
Gold’s premium over silver rose nearly 1% on Friday to 85.56 ounces.
Will Iran Retaliate?
Precious metals are the preferred safe haven of global investors fleeing geopolitical turmoil, recessionary risks and inflation. With the Dow Jones Industrial Average on Friday plunging by as much as 368 points, investors shifted more of their allocation to bullion.
The geopolitical fallout of Qassem Soleimani’s assassination by U.S. forces in Iraq is still reverberating across Wall Street. The United States is said to be deploying an additional 3,500 troops in Kuwait to counter any potential Iran retaliation. For Iran, Soleimani’s death will likely demand a response either directly from Tehran or its proxies in the region.
While Iran is unlikely to confront the U.S. military directly, it can target American interests in the region. These include coordinated strikes on U.S. military bases, rallying its proxy forces and stepping up cyber warfare.
U.S. Economy Shows Further Weakness
On the home front, the U.S. economy shifted into lower gear at the end of 2019 as manufacturing activity plunged to fresh decade lows. The Institute for Supply Management’s closely-watched manufacturing purchasing managers’ index (PMI) fell to 47.2 in December from an already recessionary 48.1 in November. On the PMI scale, anything below 50 signifies contraction.
ISM said that new orders, production and employment all contracted in the final month of the year as factory-gate prices rose.
Survey director Timothy Fiore said the initial phase of the U.S.-China trade deal should alleviate pressure on primary industry:
Global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China. Among the six big industry sectors, Food, Beverage & Tobacco Products remains the strongest, while Transportation Equipment is the weakest.
Overall, sentiment this month is marginally positive regarding near-term growth.
December marks the fifth month in a row that ISM’s manufacturing survey has signaled contraction. At the current pace, PMI data suggest the U.S. economy is growing just 1.3% annually. The growth rate picked up slightly to 2.1% in the third quarter.