Gold Up, Israel Attacks Iran

The latest developments in the gold market reveal a turnaround in the precious metal. The recent U.S. Producer Price Inflation data exceeded expectations and led to a dip in gold prices to back below the $2,000/oz USD mark. This has also supported the theory that next month's U.S. Consumer Price Inflation (CPI) might experience an upward trend. January's month-on-month PPI rose by 0.3%, surpassing the projected 0.1% and rebounding from December's -0.1%.

U.S. retail sales figures for January disappointed the market, turning negative and falling short of forecasts. The -0.8% reading for January marks the lowest in almost a year, with downward revisions for the preceding two months. January's retail sales dropped by 0.8%, while December's figures were revised from 0.6% to 0.4%, and November's initial 0.3% reading was revised to 0%.

The impact of reduced consumer spending over the past few months is apparent when looking at the decline of U.S. Treasury yields and the weakening of the U.S. dollar on Thursday. Despite these developments, market expectations regarding the Federal Reserve's interest rate policy remain that any rate cuts would likely occur mid-year. Tuesday's data on U.S. inflation showed some resilience beyond expectations in January and contributed to a reduction in expectations for an earlier rate cut. As of the current market pricing, the first 25 basis point cut is anticipated at the June 12th FOMC meeting. The recalibration of rate cut expectations has had a suppressing effect on gold, leading to a decline in its value over the past fortnight.

Despite these data releases, gold has just seen a turnaround. One of the reasons could be the conflict in the Middle East recently heating up even further. According to the New York Times, Israel has just attacked natural gas pipelines inside of Iran. This is a major escalation and if this information is accurate, could call for a response from Iran.

According to the NYT, the attacks cut off heating and cooking gas to millions of people. Though not an attack on military or civilians, it is a show of force that they are willing to take out the country's vital infrastructure. The story also notes the Israeli forces performed an attack on an Iranian chemical plant.

While this situation escalates, the MSM last week has been filled with stories about WW3. This comes as China is seeming to "sanction-proof" itself by moving its money into banks immune to Western sanctions. Is this simply a hedging strategy, or something more?

At this point it is up to the imagination. Speaking of imagination, the upcoming Marvel movie about Wolverine and Deadpool is set to take place during WW3. Hopefully this stays fiction and global conflicts decelerate, but with Israel potentially ramping up the conflict to the next level, it is easy to see why gold has bounced back.