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Gold prices sees little reaction after U.S. Q1 GDP falls 4.8%

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(Kitco News) - Despite some optimism at the start of the year, the U.S. economy saw weaker than expected economic activity in the first quarter of 2020 as the global economy was turned upside down to the COVID-19 Pandemic

Wednesday the first reading of U.S. Gross Domestic Product showed that the U.S. economic growth fell 4.8% in the first quarter. The data were weaker than expected; according to consensus figures, economists were expecting to see a -4% decline in economic activity.

The decline comes after the U.S. economy grew 2.1% in the fourth quarter of 2019.

The gold market is not seeing much movement in initial reaction to the data as prices hover in negative territory. June gold futures last traded at $1,718, down 0.24% on the day.

The weaker than expected data does not come as a major surprise to some market analysts. The U.S. economy ground to a halt last month as 95% of the population were requested to stay at home as federal and state governments closed all non-essential businesses.

“The data signals the start of the recession.  The worst is yet to come as GDP is expected to plunge in the 2Q,” said Adam Button, chief currency strategist at Forexlive.com.

Katherine Judge, senior economist at CIBC is also looking towards weaker economic growth in the U.S. following the dismal first-quarter numbers.

“The steep drop in economic activity in the US in the first quarter is just a fraction of the losses that will be seen next quarter, reflecting stricter social distancing and an expected unprecedented rise in the unemployment rate,” she said. “Even once social distancing measures start to be relaxed in the coming months, demand is expected to remain relatively weak as the unemployment rate will only fall gradually, while open capacity will limit business investment.”

Looking at some of the data in the report, personal consumption fell to a reading of -7.6%, down from economist estimates of -3.6%.

Not only is economic activity slower but the report shows that inflation is on the rise with the core Personal Expenditures Index, the Federal Reserve’s preferred inflation measure rose 1.8% in the first quarter. Economists were expecting to see a rise of 1.7%.

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