- Gold price bounces back despite better-than-expected US Q4 GDP figures.
- The US economy experienced robust growth of 3.3% as investors had anticipated a GDP expansion of 2%.
- The ongoing strength of the US economy would further enhance the attractiveness of higher interest rates, which could have a detrimental impact on the value of Gold.
The price of Gold (XAU/USD) increased despite the United States Bureau of Economic Analysis (BEA) reporting a higher-than-expected economic growth rate of 3.3%, surpassing the market participants’ anticipated rate of 2%.
The Gross Domestic Product (GDP) experienced a significant increase of 4.9% during the July-September quarter. Positive GDP figures are expected to undermine the prevailing argument in favor of the Federal Reserve (Fed) implementing early interest rate reductions.
The US economy is showing resilience with more robust PMI data, positive GDP numbers, and stable labor market conditions. As a result, Fed policymakers are considering rate cuts from March to be premature.
The US economy remains strong as there is a high demand for labor, thanks to the strong consumer spending. This positive trend is contributing to a favorable economic outlook, which supports the need for cautious monetary policy guidance.
In the coming days, market participants will closely monitor the release of the core Personal Consumption Expenditure price index (PCE) data for December, scheduled for publication on Friday. Fed policymakers tend to favor the underlying core inflation when making decisions about the interest rate policy.
While Rates on US Bonds Are Under Pressure, the Price of Gold Continues to Rise
- The price of Gold rebounds despite the US Q4 GDP data exceeding expectations. The yields on 10-year US Treasury bonds have fallen to approximately 4.13%.
- The strong growth of the economy has heightened concerns about a persistent inflation outlook, leading Federal Reserve policymakers to support a more cautious approach to interest rates.
- According to the CME Fedwatch tool, the likelihood of a 25 basis-point reduction in interest rates in March has decreased to 42.4%.
- Market expectations for the Fed to maintain the current interest rate gained momentum this week, driven by the robust recovery of the US PMIs in December. The Manufacturing PMI exceeded expectations and the previous reading of 47.9 by landing at 50.3, comfortably above the threshold of 50.0.
- The Services PMI, which reflects the service sector and plays a significant role in the economy, increased to 52.9 from the previous reading of 51.4, surpassing expectations of 51.0.
- The US economy has experienced a strong rebound, suggesting a positive start to 2024 and a promising outlook for the rest of the year.
- The prospect of easing inflation, the resolution of cost-of-living issues, and a decrease in borrowing rates encouraged the business community.
- The US Dollar regained significant strength thanks to a robust set of PMI numbers. If the US GDP data exceeds expectations, it could bolster the dollar’s appeal even more.
- Furthermore, the US Q4 GDP has been accompanied by the release of weekly Initial Jobless Claims (IJC) and Durable Goods Orders. In the period ending January 19, there was an increase in the number of individuals filing for unemployment benefits for the first time. The figure stood at 214K, surpassing projections of 200K and the previous reading of 189K.
- The US Durable Goods Orders for January showed no significant change from December, despite expectations of a 1.1% increase by investors. In November, there was a substantial increase of 5.5% in the economic data.
- Following the release of the US Q4 GDP data, market participants will turn their attention to the core behind December inflation figures, which will be unveiled on Friday.
- A persistent core PCE price index reading would bolster the argument for a more cautious approach to monetary policy.
- In the upcoming week, it is widely expected that the Fed will keep things as they are. However, a persistent inflation report could lead them to support raising interest rates until the first half of 2024 concludes.
The Price of Gold Is Determined to Reclaim $2,020
The price of Gold is currently trading within the range observed during Wednesday’s trading session as investors patiently await the release of the US Q4 GDP data. The valuable metal is currently stabilizing above $2,016 but still falls short of the 20-day Exponential Moving Average (EMA), suggesting a lack of near-term demand.
The 14-period Relative Strength Index (RSI) continues to stay within the 40.00-60.00 range, indicating a lower likelihood of a significant shift. A potential downside movement may occur if the price of Gold is unable to maintain its position above the critical psychological support level of $2,000.