(Kitco News) - The U.S. economy ended 2025 on weak footing, as economic activity was significantly weaker than expected. At the same time, inflation remains stubbornly elevated, which analysts have said is a healthy environment for gold.
The U.S. Bureau of Economic Analysis (BEA) announced on Friday that the advance reading of fourth-quarter Gross Domestic Product (GDP) showed that the economy expanded by 1.4%, following a 4.4% increase in the third quarter.
The data significantly missed expectations, as economists were projecting an increase of 2.8%.
The release of fourth-quarter GDP was delayed due to the 43-day government shutdown through October.
“Compared to the third quarter, the deceleration in real GDP in the fourth quarter reflected downturns in government spending and exports and a deceleration in consumer spending that were partly offset by an acceleration in investment. The decrease in imports was smaller than in the prior quarter,” the report said.
The report also noted that inflation remained persistently elevated through the fourth quarter. The advance GDP Price Index rose 3.6%, following a 3.8% increase in the third quarter. Economists were expecting to see a 2.8% increase.
For the year, the report said the PCE price index increased 2.6%, the same increase as in 2024. Meanwhile, looking at core inflation, which excludes food and energy prices, the PCE price index increased 2.8%, compared with an increase of 2.9%.
Providing a more nuanced look at inflation, the BEA also released Personal Consumption Expenditures (PCE) data for December, including the core PCE index, which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge.
The report said the core PCE index increased 0.4% in the final month of the year, up from a 0.2% increase in November. Inflation came in hotter than expected, as economists forecast a 0.3% increase.
According to commodity analysts, the weak growth and higher inflation pressures could provide some support for gold, as prices have managed to retake the $5,000-an-ounce level ahead of the weekend.
Spot gold last traded at $5,041.20 an ounce, up nearly 1% on the day.
According to analysts, the precious metal remains well supported, as the disappointing economic data could prompt the Federal Reserve to cut interest rates even as inflation pressures remain elevated. This would push real interest rates sharply lower, reducing gold’s opportunity costs as a nonyielding asset.
President Donald Trump tried to get ahead of the disappointment with a social media post that blamed Democrats for the shutdown, which he said “cost the USA at least 2 points in GDP.”
However, according to most major polls, American voters largely blamed Republicans, who control Congress and the White House.
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, said that despite the disappointing headline numbers, consumer spending remains a bright spot for the economy. The report said that personal spending increased 2.4% in the fourth quarter.
“Consumers are still spending, and previous readings of the labor market and consumer price index have been consistent with a growing economy that is continuing to see a dampening of the inflation pressures that peaked a few years ago,” he said. “Unfortunately, this report will prolong the disagreement between hawks and doves at the Federal Reserve, with core PCE stubbornly remaining far above its 2% target, while GDP is lower and job creation is relatively anemic.”
Zaccarelli added that he expects the Federal Reserve to cut interest rates at least three times this year.
