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Gold Holding Gains As US GDP Rises 2.3% In Q1

Kitco News

(Kitco News) - The gold market is holding on to modest gains, after the latest data from the U.S. Commerce Department showed the economy grew more than expected in the first quarter of 2018.

Friday, the advance reading of first-quarter Gross Domestic Product showed the U.S. economy grew 2.3%. The data was stronger than expected as consensus forecasts were calling for growth of 2%. The data comes after the fourth quarter last year grew 2.9%.

According to reports, this is the best start to the year since 2015.

According to some analysts gold is holding its own as the data underneath the headlines is not overly positive than expected. June gold futures last traded at $1,320.30 an ounce, up 0.18% on the day.

According to some economists, the bar was set pretty low as first-quarter growth is traditionally low.

Positive trade data and an increase in inventories were two major factors behind the beat in first quarter growth; according to some economists, these factors are not sustainable in the long term. Business investment was slightly weaker than expected, an indication that businesses aren't reinvesting their recent tax-reform windfall.

"US GDP was a tad firmer than expected to start the year, but with that gap largely driven by inventory building, there will be no rush to rewrite the outlook for the year as a whole," said, Avery Shenfeld, senior economist at CIBC World Markets. "The two surprises were that net trade was a small plus for growth, and inventories added a full 0.4% to the growth rate - an area where we could see a give back in Q2 if shipping backlogs are at least partially resolved."

U.S. consumers are left to do the heavy lifting but didn't show any significant surprises coming in line with expectations at 1.1%.

Inflation remains relatively muted with the GDP Price Index increasing 2% in the first quarter. Economists were expecting to see a 2.2% rise. Core PCE came in line with expectations rising 2.5%; however, Shenfeld said that he doesn't think this rise does not pose a significant threat to the Federal Reserve.

Paul Ashworth, chief U.S. economist at Capital economists said that 2.3% growth in the first three months of the year is a little disappointing because historic tax cuts, which were passed last year and came into effect in January, should have provide a strong boost to growth.

“Nevertheless, given that the economy has repeatedly swooned in the first quarter in recent years, the Fed won’t be too concerned. After all, 2.3% is still above most estimates of the economy’s potential growth rate,” he said. “The big disappointment was the slowdown in consumption growth to only 1.1% annualized, from 4.0% in the final quarter of last year.”

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