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Gold Sees Little Reaction After U.S. GDP Shows 0.7% Growth In Q1

Kitco News

(Kitco News) - Gold prices are unable to find any momentum Friday despite the U.S. economy expanded at a slower pace than expected in the first three months of the year according to the latest data from the Commerce Department.

Friday, the first estimate of first quarter gross domestic product showed that the U.S. economy expanded 0.7% at the start of the year. This latest report follows 2.1% growth in the fourth quarter of 2016.

The data was weaker than expected as economists were expecting to see growth of 1.3%, according to consensus estimates. Reports have noted that this is the weakest first-quarter growth in three years.

However, gold prices, while volatile around the report are relatively unchanged, with June Comex gold futures last trading at $1,268.30 an ounce, up 0.19% on the day.

Currency analysts at Forexlive.com are describing the latest report as “soggy,” as the flash data showed broad-based weakness in the U.S. economy. Personal consumption, a major pillar in the nation’s growth, expanded 0.3% in the first three months of the year, down from 3.5% in the fourth quarter and below expectations for growth of 0.9%.

Royce Mendes, senior economist at CIBC World Markets, noted that while the data was weaker than expected, it does not come as a major surprise.

“The US economy appears to have hit a bump in the road during the first quarter of the year. But that's nothing new, a number of Q1's have posted weak growth figures only to rebound over the subsequent quarters,” he said. “Overall, the numbers today don't look particularly good, but we're willing to look past it with seasonal adjustment issues still likely prevalent.”

What could be holding gold back is that the disappointing data has not impacted interest rate expectations. CME 30-Day Fed Fund futures show markets see a more than 70% chance of a rate hike in June.

Paul Ashworth, chief U.S. economist at Capital Economics, said that the data does not stop the U.S. central bank from raising rates in June, especially with core PCE at 2%, the Federal Reserve’s official inflation target.

“As long as employment growth rebounds in April and May, there is no reason for the Fed to stand pat, particularly not if financial conditions remains this loose,” he said.

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