The gold bulls have been handed additional fuel as we close in on the end of the week with official figures confirming that US GDP contracted in the first quarte of the year.
The US Commerce Department also confirmed that the fall was greater than had been expected, with analysts looking for a 1% dip and real figures showing a 1.4% loss. Covid-19 factors remain a damaging force on the economy the accompanying report says, despite the President’s Chief Medical Advisor, Dr Anthony Fauci declaring the pandemic over earlier this week.
The report noted, “In the first quarter, an increase in COVID-19 cases related to the Omicron variant resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country.”
There was an additional caveat which suggested the true impact was greater, with the report authors going on to say, “The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter because the impacts are generally embedded in source data and cannot be separately identified.”
For analysts, the size of the contraction was a shock. Coupled with continuing inflation pressures which is also causing household spending to slow, gold is once again shining brightly as a stable, trusted safe haven.
CIBC senior economist Avery Shenfeld said, “Real GDP decreased at an annualized 1.4% in Q1… But that was heavily weighed down by a drop in exports as some of America’s trading partners are not as far along in the recovery, a tilt in U.S. demand that drew in imports, and much lighter inventory accumulation that chopped 0.8% from the growth rate.
“Inflation, the real concern these days, saw core PCE prices up 5.2% from the prior year, and that is starting to put a squeeze on household spending power, with the savings rate dropping by just over 1% this quarter. While the growth pace was a shock to the downside, until employment growth slows, the Fed will be focused on hiking rates to bring those inflation pressures back down to the earth, making next week’s payrolls numbers more relevant to the pace of monetary tightening.”
In the aftermath of this data being published, gold prices jumped 0.30%, taking the bull back towards £1,525 ($1,900) territory. The yellow metal continues to gain back lost ground following short-term sell-offs and is once again on course to test the resistance level ahead of a move higher into record levels.
