(Kitco News) - Unable to push above $2,400 an ounce overnight, gold bears are taking over and they have solid momentum, as the U.S. economy grew significantly more than expected in the second quarter.
Thursday, the Bureau of Economic Analysis said the advanced reading of second-quarter GDP showed that the economy grew 2.8% between April and June, up from 1.4% growth reported in the first quarter.
“The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased,” the report said. “Compared to the first quarter, the acceleration in real GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in consumer spending.”
The economic data significantly beat expectations as economists were looking for a 2.0% increase.
The gold market was under pressure ahead of the data but has slipped lower in its initial reaction. August gold futures last traded at $2,367.40 an ounce, down 2% on the day.
Looking at the health of American consumers, the report said that consumer spending in the second quarter rose 2.3%, up from 1.5% reported in the first quarter.
“The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were health care, housing and utilities, and recreation services. Within goods, the leading contributors were motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment, and gasoline and other energy goods,” the report said.
While the U.S. economy remains resilient, the data also showed that inflation pressures continue to ease. The Advance second-quarter GDP Price Index increased to 2.3%, down from 3.1% in the first quarter. Inflation was weaker than expected as economists looked for a 2.6% increase.
At the same time, the GDP core PCE Prices Index rose 2.9%, down from 3.7% reported in the first quarter. However, PCE was hotter than expected as economists were looking for a 2.7% increase.
Although the U.S. economy continues to see robust growth, the latest report is not impacting expectations that the Federal Reserve will start cutting interest rates after the summer.
Markets have all but completely priced in a rate cut in September. Market analysts have noted that even with strong economic growth, falling inflation gives the Federal Reserve room to lower interest rates.
