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Gold prices under pressure as U.S. economy grew 2.9% in the fourth quarter, beating expectations

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(Kitco News) - The gold market is seeing increased selling pressure as the U.S. economy proved to be more resilient than expected in the final quarter of 2022.

Thursday, the U.S. Bureau of Economic Analysis said, in its advanced report, that U.S. Gross Domestic Product grew 2.9% in the fourth quarter of last year. While economic activity was down from 3.2% growth reported in the third quarter, the data beat expectations. According to consensus estimates, economists were looking for growth of around 2.6%.

"The increase in real GDP reflected increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment and exports," the report said.

The gold market was seeing some technical selling pressure ahead of the data as investors appear to be taking profits after prices hit a fresh nine-month high late Wednesday; however, the selling pressure has picked up in initial reaction to the data.

February gold futures last traded at $1,935.40 an ounce, down 0.37% on the day.

Looking at some of the components of the report, consumer spending increased 2.1% in the first quarter, down slightly from the third-quarter increase of 2.3%.

Trade was also net positive for economic growth into year-end. The report said exports fell 1.3% in the fourth quarter, down from a 14.6% increase in the third quarter. At the same time, imports fell 4.6% between October and November, up from the third-quarter drop of 7.3%.

While the solid economic data will help reduce some recession fears, the growth continues to come with a cost as inflation remains persistent.

The advanced fourth quarter GPD price index rose 3.5%, coming slightly hotter than expectations. Economists were looking for an increase of 3.2%.

Meanwhile, core PCE rose 3.9%, down slightly from consensus forecasts for a 4.0% rise.

Although the U.S. economy was healthier heading in the first months of 2022, economists warn that the risks for a recession this year remain elevated. Economists note that deep contractions in the manufacturing sectors point to weak activity this year.

"With inventories now elevated across many industries, and consumers running through excess savings, we see the potential for a contraction in the economy in the first quarter as the impact of past rate hikes materializes more fully, and consistent with a tapering off of momentum in recent monthly indicators," said Katherine Judge, senior economist at CIBC.

Although the gold market is seeing some technical selling pressure, some analysts have said that gold still remains in a solid uptrend as the market environment remains supportive.

The GDP data has not impacted market expectations that the Federal Reserve will raise interest rates by 25 basis points next week. At the same time, the U.S. dollar remains in a solid downtrend as the U.S. dollar index remains below 102 points.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.