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Gold prices trading near session highs as U.S. Q1 GDP drops 1.6%

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(Kitco News) - Weaker-than-expected consumption continues to take its toll on the U.S. economy, which contracted more than expected in the first quarter.

The latest disappointing economic data is providing some support for the gold market as prices trade near session highs but remain below the critical psychological level at $1,850 an ounce.

Wednesday, the Commerce Department said the final reading of U.S. Q1 GDP shows the economy contracted by 1.6%. Economists were expecting GDP to hold steady with a decline of 1.5%.

"The update primarily reflects a downward revision to personal consumption expenditures (PCE) that was partly offset by an upward revision to private inventory investment," the report said.

The gold market was seeing some modest technical buying momentum ahead of the report and prices have been further supported following the disappointing data. August gold futures last traded at $1,833.30 an ounce, up 0.66% on the day.

Economists note that rising inflation continues to take its toll on consumers as they see their purchasing power dwindle.

The report said that the final GDP Price Index rose 8.2%, up from 8.1% reported in the second estimate.

"The negative revisions in spending and higher revisions in inflation both should have made for a larger negative revision overall. That was offset by upward revisions to inventories," said Adam Button, Chief Currency Strategist at Forexlive.com.

Some economists have said that the latest GDP data highlights the risk that the U.S. economy is headed towards a recession as the economic weakness is exacerbated by rising interest rates. The Federal Reserve has said that it will continue to aggressively raise interest rates to bring inflation back down.

However, other economists remain optimistic that the U.S. economy can avoid a recession as the labor market remains strong.

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