(Kitco News) - Rising recession fears are providing some limited support for gold as the U.S. has started the new year on the back foot, with the economy contracting in the first three months of 2025.
The first look at the U.S. Gross Domestic Product showed the economy contracting by 0.3% in the first quarter of 2025, the Bureau of Economic Analysis announced Wednesday. The data came in weaker than expected, as economists were looking for a 0.3% increase.
This is the first contraction that the economy has seen since 2022. Activity is down sharply compared to the 2.4% growth reported in the fourth quarter.
“The decrease in real GDP in the first quarter primarily reflected an increase in imports, which are a subtraction in the calculation of GDP, and a decrease in government spending. These movements were partly offset by increases in investment, consumer spending, and exports,” the report said.
The gold market continues to see solid selling pressure in its reaction to the latest disappointing economic data. Spot gold last traded at $3,286 an ounce, down roughly 1% on the day.
Although gold is seeing robust profit-taking, many analysts note that the disappointing data should create some safe-haven demand for the precious metal. The weak growth numbers could also force the Federal Reserve to cut interest rates, even as inflation remains elevated.
Along with a contraction in headline growth, the report also noted that inflation pressures increased in the first quarter. The Advance GDP Price Index rose to 3.7%, up from the 2.3% reported in the fourth quarter. Economists were expecting to see an increase of 3.1%.
Economists note that President Donald Trump’s tariff threats at the start of the year had an outsized effect on the data. Companies increased imports and stockpiled goods in preparation for potential tariffs.
However, Adam Button, chief currency strategist at Forexlive.com, said that despite these mitigating factors, the report does not show much good news.
“This report is negative, but it's even worse than it looks with a poor showing domestically and from the consumer. In addition, the inflation numbers were hotter,” he said.
Button noted that lower imports in the second quarter will offset this quarter’s trade data; however, going forward, consumption is expected to weaken as consumers face higher prices.
The report said that consumer spending increased 1.8% in the first quarter, down sharply compared to the 4.0% increase reported in the fourth quarter.
Despite the disappointing headline number, some economists have said that the threat of a recession remains lows.
“A successful resolution to global trade policy would likely remove most of the volatility and uncertainty currently experienced by businesses and consumers. Moreover, the consumer is too strong to speculate the economy has dipped into recession. Outside of the trade-induced shocks to business inventory management, the economy is holding up,” said Jeffrey Roach, Chief Economist for LPL Financial, in a note.
Bill Adams, Chief Economist for Comerica Bank, said that the economic upheaval in April caused by trade uncertainty makes first-quarter GDP less important; however, he added that it does show the trajectory of the economy.
“Between the GDP report, April’s ADP report, and a pullback in business and consumer surveys last month, the economy is losing momentum and risks to the economic outlook are increasing,” he said in a note. “
