The precious metals traded higher on Friday but pared their gains after consumer prices and retail sales were reported in the U.S. this morning. The gold price still inched higher to $1,328/oz in early trading while silver prices were back up 11¢ (+0.6%) to $17.07/oz.
Platinum and palladium each rallied to close out the week: platinum rose 0.9% to $990/oz and palladium surged 2.2% to $1,100/oz. Even if prices fail to hold their ground in positive territory by the closing bell, this will mark the fifth straight week of gains for the gold market.
Spot gold traded as high as the $1,330 level on Friday, which is seen as key technical resistance. The yellow metal was dragged lower after the consumer price index (CPI) showed a 0.1% rise during December. The increase in inflation was due partly to higher rent and housing costs. When volatile food and energy prices are taken out, core CPI rose a robust 0.3% during the month.
The report from the Labor Department also indicated that wages were up 0.2% in December, the first increase in five months. However, real wages (which account for inflation) have only risen 0.4% year-on-year despite persistently low unemployment. A tighter labor market is generally expected to place upward pressure on wages.
Stocks on Wall St set new all-time highs on Thursday but opened mixed this morning. The first quarterly earnings reports are due today by several of the big financials such as JPMorgan and Wells Fargo. Equities have continued to march higher in the longest period of low volatility on record. There hasn't been a downward move of as much as 3% in any trading day during the past two years.
However, volatile action has certainly returned to the bond market. U.S. Treasurys fell again as the 10-year yield returned to 2.59%. The 2-year T-note yield is back above 2.0% for the first time since the throes of the financial crisis in 2008. The yield curve on U.S. debt has continued to flatten—meaning the spread between longer-dated and shorter-dated bonds continues to shrink. Over the course of the last year, the 2-year yield has more than doubled as inflation, economic growth, and interest-rate expectations have all climbed higher. Investors are currently placing about an 80% chance of a rate hike by the Fed in March.
The euro surged 0.85% to a three-year high above $1.21 following a major breakthrough in the political outlook for Germany. After winning a plurality of votes in last fall's elections, Prime Minister Angela Merkel's party has finally neared an agreement on forming a new governing coalition in the Bundestag. This sent the dollar 0.6% lower to 91.3 on the DXY index as the greenback continues to slump against its major peers. The pound sterling also rallied 0.95% to trade at $1.367, its highest since before the Brexit vote in the summer of 2016. The Japanese yen held steady around ¥111.5 per USD. Shares closed lower in Tokyo but markets elsewhere in Asia and Europe rose on Friday.
After rallying for the past four weeks, WTI crude oil prices fell by 0.6% this morning to trade back at $63.60/bbl. Brent crude was just shy of $70 per barrel. Oil prices have no doubt been helped by the ongoing production cuts by Russia and OPEC, and rising prices are bringing a number of shale projects back online in the U.S.
In another economic report, the Department of Commerce released the most recent retail sales data on Friday. Retailers saw sales rise by 0.4% during December, as nine out of 13 major retail categories posted gains. This followed a 0.9% gain in November, marking the best year-end performance for retail since 2010. Retail sales rose by 4.2% during the 2017 calendar year.
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