US economy outshines expectations, deals blow to gold prices

Gold (XAU/USD) prices have sunk below $1,900 as the US economy defies expectations, dampening recession concerns. In the latest report, the third estimate reveals that the US Q1 GDP experienced an impressive 2.0% rise, surpassing market projections of a 1.4% increase. This robust economic activity showcases notable growth compared to the previous reading of 1.3%.

According to the report, the updated estimates reflect upward revisions in exports and consumer spending, partially offset by downward revisions in nonresidential fixed investment and federal government spending.

While the PCE price index, a measure of inflation, remained relatively unchanged, ticking up by 4.1% compared to the previous estimate of 4.2%, the core PCE prices, which excludes volatile food and energy prices, rose by 4.9%—a slightly lower figure than the anticipated 5.0% consensus forecast.

The gold market was already grappling with support issues, with prices hovering around a three-month low prior to the release of the latest GDP report. The initial market response shows gold continuing to face downward pressure in light of the positive economic data.

Driving US growth, consumer demand showcased a significant surge. Durable goods spending by consumers increased by a remarkable 16.3%, rebounding from a 1.3% decline in the fourth quarter of 2022. Overall consumer spending also saw a boost, increasing by 4.2%, surpassing the previous estimate of 3.8%.

The latest economic data cast a shadow on gold’s safe-haven appeal, according to analysts. With the robust economic growth, economists suggest that the Federal Reserve has ample room to tighten interest rates to curb inflation and bring it down to its target of 2%.

At the time of writing, spot gold is trading at $1,894.17.