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Gold prices holding support above $1,650 as U.S. GDP contracts 0.6% in Q2 in line with expectations

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(Kitco News) - The gold market is seeing some renewed selling pressure but is largely ignoring an in-line contraction in the U.S. economy during the second quarter.

Thursday, Commerce Department said in its third and final reading that U.S. Gross Domestic Product fell 0.6% in the second quarter, unchanged from the previous estimate.

The gold market is seeing some selling pressure but holding support above $1,650 an ounce in initial reaction to the latest economic data. December gold futures last traded at $1,657 an ounce, down 0.79% on the day.

The latest update shows consumer demand remains pretty resilient, with personal consumption rising 2% in the second quarter, up from the previous estimate of 1.5%. Looking at trade data, imports rose 2.2% in the second quarter, down from a prior estimate of 2.8%; at the same time, exports rose 13.8%, down slightly from the previous estimate of 17.6%.

Inflation pressure also remains persistently high, with the core Personal Consumption Expenditures Index rising 5.6% in the second quarter. Economists were looking for a rise of 4.4%. Headline PCE rose 7.5% in the second quarter, coming in hotter than expected. Consensus forecasts were calling for an increase of 7.1%.

Market analysts note that although gold is traditionally an important inflation hedge, the data is working against the precious metal. Hotter-than-expected inflation will force the Federal Reserve to maintain its aggressive monetary policy stance, which supports the U.S. dollar at its 20-year highs.

“To the extent that there are any clear implications for the Fed, that will further support officials’ current hawkish stance,” said Andrew Hunter, senior U.S. economist at Capital Economics.

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