Gold prices treading water around $2000 an ounce as U.S. GPD grows 1.1% in Q1 - Kitco NEWS

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(Kitco News) - According to some economists, recession fears could increase following a disappointing start to 2023 following significantly weaker-than-expected first-quarter Gross Domestic Product.

Thursday, the U.S. Bureau of Economic Analysis said the advanced reading of first-quarter GDP shows the economy grew 1.1%, down from fourth-quarter growth of 2.6%. According to consensus estimates, economists were to see growth of around 2.3%.

"The increase in real GDP reflected increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment," the report said.

However, the disappointing data is not having much impact on gold as the market appears to be treading water in neutral territory. June gold futures last traded at $2,003.10 an ounce, up 0.36% on the day.

"The disappointing 1.1% annualised rise in first-quarter GDP indicates that the economy had less forward momentum at the start of this year than previously thought. We continue to expect the drag from higher interest rates and tightening credit conditions to push the economy into a mild recession soon," said Andrew Hunter, deputy chief U.S. Economist, at Capital Economics.

Meanwhile, some economists are also dismissing the slow economic activity of the U.S. economy during the first three months of the year. Despite the disappointing headline number, the report noted that consumption remains robust.

Consumer spending increased 3.7% in the first quarter, up from 1.0% in the fourth quarter. At the same time, consumer spending on durable goods increased 16.9%, up from a 1.3% decline in the final three months of 2022.

The report also noted that trade data is also impacting GDP as imports rose 2.9% in Q1, up from a 4.4% decline in Q4. At the same time, exports increased 4.8%, up from the prior drop of 3.7%.

The report noted that growth was dragged down by the weak housing market and business investments. Both sectors have been significantly impacted by the Federal Reserve's aggressive tightening cycle.

While the economic data was disappointing, some commodity analysts have said that gold is unable to attract bullish momentum because inflation pressures remain persistently elevated. The report said that the GPD Price Index rose to 4.0%, up from 3.9% reported in the fourth quarter. Economists were looking for a small increase of 3.7%.

Of particular concern, core Personal Consumption Expenditures (PCE) rose 4.9%, up from the previous increase of 4.7%. Economists were looking for an increase of 4.4%. According to some economists, the rise in core inflation is an indication that higher consumer prices are becoming embedded in the broader economy.

The inflation data is adding to expectations that the Federal Reserve will raise interest rates one last time next week and could maintain the elevated level through the summer.

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2023-04-27 12:36:00Z
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