Gold price steadies as GDP data influences interest rate outlook

Gold price has maintained intraday gains above $2,300 amid higher US Q1 GDP inflation. Gold is trading at $2330.36 per ounce at the time of writing, with gains surpassing +0.65%.

The Fed will maintain the “higher for longer” interest rates argument, and the easing of tensions in the Middle East has improved the demand for risky assets. The US Dollar and bond yields strengthened after the Bureau of Economic Analysis reported a significant rise in the Q1 GDP Price Index to 3.1% from the former reading of 1.7%. This has deepened the risks of the Fed delaying rate cuts later this year.

A sharp decline in GDP growth has raised concerns over the US economic outlook. The US economy expanded at a significantly slower pace of 1.6% from expectations of 2.5%, and in the last quarter of 2023, the economy grew strongly by 3.4%. A significant fall in the GDP growth rate is unlikely to scrap the speculation for the Fed to achieve the so-called soft landing, in which the central bank achieves price stability without triggering a recession. However, this indicates that the economy struggles to bear the consequences of higher interest rates by the Fed and is expected to dampen investors’ confidence in the strong economic outlook.

Investors will focus on the core Personal Consumption Expenditure Price Index (PCE) data for March, which will guide the next move in the gold price. A significant change in the PCE data will likely force traders to reassess expectations for the timing of Fed rate cuts.

With the market for safe haven assets declining as concerns about the escalating Middle East conflict fade, the near-term picture for gold is still uncertain. Because of the robust labour market and increased inflationary pressures, Fed policymakers do not believe that rate decreases are urgently needed.

Because it is not dependent on any one issuer or government, gold is commonly seen as a hedge against inflation and declining currencies. Gold has played a significant role in human history as a store of value and medium of trade.