Gold bounces after hefty losses; Chinese demand a "bubble"

Gold prices rose Friday, bouncing after losses in the previous session, with traders focusing on rising tensions in the Middle East while digesting the latest U.S. inflation data. 

At 08:50 ET (13:50 GMT), Spot gold rose 1.4% to $4,988.45 an ounce and gold futures for April rose 1.3% to $5,013.81/oz.

Spot prices tumbled over 3% in the prior session. 

Spot silver rose 4.3% to $78.945/oz, after wiping out some 10% in the prior session, while spot platinum rose 1.6% to $2,054.90/oz, climbing back above $2,000/oz after logging deep losses in the prior session. 

Safe haven demand helps bullion

Bullion has benefited from some safe haven demand on Friday after a host of reports said Washington planned to deploy a second aircraft carrier -- the USS Gerald R. Ford -- in the Middle East, as nuclear talks with Iran faltered. 

Uncertainty over future U.S. interest rate cuts was a major weight on metal prices, especially after payrolls data showed some signs of resilience in the labor market in January. The dollar came off its weekly lows following Wednesday’s nonfarm payrolls print. 

U.S. CPI data awaited for more cues

Data released earlier Friday indicated that headline U.S. consumer prices rose by 2.4% in the twelve months to January, compared to estimates of 2.5% and December’s pace of 2.7%.

On a monthly basis, the Labor Department’s consumer price index increased by 0.2%, versus economists’ expectations that it would match December’s rate of 0.3%.

Stripping out volatile items like food and fuel, core CPI rose 2.5% year-on-year and 0.3% month-on-month, in line with forecasts. In December, the figures stood at 2.6% and 0.2%, respectively.

"The CPI is a (small) net positive (especially since it comes on back of a solid labor report on Wedneday) but really doesn’t change the narrative dramatically (since core was in line)," said analysts at Vital Knowledge, in a note.

Labor market strength and inflation are the Federal Reserve’s two biggest considerations for interest rates. 

Relatively high interest rates diminish the appeal of non-yielding assets such as gold, while any strength in the dollar also stands to pressure the yellow metal. 

Gold, precious metals set for muted week 

Thursday’s losses saw gold and other precious metals largely reverse a recent rebound, with the yellow metal now trading up marginally for the week. 

Precious metals have struggled for direction since a flash crash in late-January, with uncertainty over U.S. interest rates being a key point of pressure.

Gold’s slump from recent records was initially triggered by U.S. President Donald Trump nominating Kevin Warsh as the next Chairman of the Federal Reserve, with Warsh being viewed as a less dovish pick.

Chinese gold demand a "bubble" - Capital Economics 

Capital Economics warned in a note this week that China’s surging gold demand increasingly resembles speculative behaviour rather than a rush to safety, raising the risk of further market turbulence. 

According to the firm’s analyst, Hamad Hussain, “the growing use of leverage and futures trading to gain exposure to gold in China suggests that the recent increase in Chinese gold demand is more consistent with a speculative bubble inflating.” 

The firm believes that dynamic “will probably contribute to higher volatility in the gold market.”