Gold prices rise as M.east-driven safe haven demand offsets CPI shock

investing.com:

Investing.com-- Gold prices rose on Friday as an escalation in the Middle East crisis ramped up safe haven demand, which also helped the yellow metal gain despite stronger-than-expected U.S. inflation data.

U.S. and British forces launched a series of strikes against the Iran-aligned, Houthi group in Yemen, in response to the group’s attacks on ships in the Red Sea. The move also marked a widening in the Israel-Hamas war, which was seen as a key motivator of recent Houthi aggression.

The move ramped up safe haven demand for gold, given that increased geopolitical risks usually drive investors towards more traditional havens. It also helped bullion prices firm despite a stronger U.S. inflation reading.

Spot gold rose 0.3% to $2,034.78 an ounce, while gold futures expiring in February shot up nearly 1% to $2,038.80 an ounce by 00:14 ET (05:14 GMT).

While gold prices saw some strength on Friday, they were still set to end the week marginally lower, amid uncertainty over the path of U.S. interest rates.

Consumer price index data showed on Thursday that U.S. inflation grew slightly more than expected in December, which, coupled with recent resilience in the labor market, gives the Federal Reserve less impetus to begin cutting interest rates early.

But traders appeared to have largely maintained their bets on early interest rate cuts by the Fed, at least according to the CME Fedwatch tool. The tool showed traders pricing in an over 70% chance for a 25 basis point cut in March, up from the 64% chance seen before the CPI data.

ING analysts said the trend “simply looks wrong,” while several Fed officials also reiterated that bets on early rate cuts were overly optimistic. While the central bank is still expected to cut interest