Gold Declines After a Solid 4th Quarter GDP Report Is Released by the BEA

Gold Futures Fall for the First Time in Six Trading Days

As of 4:35 PM EST, the February contract of gold futures has fallen for the first time in six trading days. Currently, February gold is fixed at $1929.30, a decline of $13.30 or 0.68%. Gold traded to a high of $1949.80 overseas last night, which was before the release of the GDP report. Following the released GDP report gold traded to a low of $1918.40.

Strong Economic Growth at the End of 2022

The key takeaway from today’s 4^th quarter GDP report was that economic growth was strong at the end of 2022 and contributing factors were a strong jobs market and declining inflationary pressures.

According to the BEA (Bureau of Economic Analysis) GDP for Q4 2022 increased at an annual rate of 2.9% when adjusted for inflation. This is a decline from the 3^rd quarter of 2022 whose GDP indicated growth of 3.2%. The report conveyed that consumer spending, which grew by 2.1% was the foundation of the strong growth in the United States.

Challenges for Federal Reserve

The second half of last year greatly differed from the beginning of 2022 a time of economic contraction. The fact that the United States economy rebounded in the second half of the year reduced the speculation that the Federal Reserve’s rate hikes would lead to a recession. However, it must be noted that the average GDP of last year indicated growth at only 1%, an immense contrast compared to the 2021 annual GDP of 5.7%.

Today’s GDP report will strengthen the conviction of hawkish Fed officials to maintain their extremely aggressive monetary policy which includes more rate hikes and keeping those elevated rates for a longer time. This raises the probability that the Federal Reserve will continue to raise rates at the next two FOMC meetings. Market participants are expecting rate hikes of ¼% next week and at the FOMC meeting on March 22.

As long as the Federal Reserve raises rates no more than ¼% at the next two FOMC meetings this would continue the bullish market sentiment that has been prevalent in gold since the major rally began at the beginning of November 2022.

The caveat to the statement above is tomorrow’s PCE inflation index report. Currently forecast our predicting that tomorrow’s report for the core PCE will show a decline from 4.7% in November to 4.4% in December.

Many analysts including myself believe that inflation will continue to decline but become sticky at a certain level well above the Fed’s target of 2%. If this assumption unfolds it will create more challenges for the Federal Reserve to either raise its target of 2% or become more aggressive for a longer period.

I will be speaking at the VRIC 2023 on Monday, January 31^st in Vancouver. Both Kitco News and I welcome you there if your available

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Wishing you as always good trading,

Gary S. Wagner