2/23/23 Gold prices remains under pressure as U.S. Q4 GDP increased 2.7%, inflation remains persistently high

  2/23/23 Gold prices remains under pressure as U.S. Q4 GDP increased 2.7%, inflation remains persistently high (1)

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Gold prices remains under pressure as U.S. Q4 GDP increased 2.7%, inflation remains persistently high

Neils Christensen Thursday February 23, 2023 08:37

Kitco News

(Kitco News) - The gold market is seeing continued selling pressure as the U.S. reported solid growth in the final months of 2022, even as economic activity was revised slightly lower.

Thursday, the U.S. Bureau of Economic Analysis said the second reading of fourth-quarter Gross Domestic Product shows the economy grew 2.7%, down slightly from the initial estimate of 2.9%. According to consensus estimates, economists were to see an unchanged reading.

"The updated estimates primarily reflected a downward revision to consumer spending that was partly offset by an upward revision to nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, were revised up," the report said.

The gold market is not seeing much reaction to the latest economic data as it continues its downward slide. April gold futures last traded at $1,832.80 an ounce, down 0.47% on the day.

The report noted that personal consumption was a contributing factor to the latest downward revision. The report said that consumption increased by 1.4%, down from the initial estimate of 2.1%.

Jim Wyckoff, senior technical analyst at Kitco.com, noted that persistently higher inflation data in the latest GDP report also appears to be weighing on gold. The report said that the GDP Price Index for the quarter rose 3.9%, up from the initial estimate of 3.5%. Economists were looking for inflation to hold steady.

The report said that core inflation, which strips out volatile food and energy prices, rose 4.3% in the fourth quarter, up from the initial estimate of 3.9%.

Analysts have said that persistently high inflation could force the Federal Reserve to continue to aggressively raise interest rates next month. Recently, some central bank committee members have said they support the idea of a 50-basis point move at the next meeting as they focus on cooling down inflation.

Some market analysts note that while the U.S. economy remained resilient in the fourth quarter, the report continues to highlight areas of concern and the threat of a looming recession. Adam Button, chief currency strategist at Forexlive.com, noted that the manufacturing sector remains a drag on economic growth.

He noted that goods demand fell 0.13 percent points in the fourth quarter.

"The goods portion of the economy is in a full-on recession, with four consecutive quarters of contraction in a strong bullwhip effect from pandemic spending. Services is carrying all the weight, but the momentum is slowing," he said. "At the moment, the consumer and government are holding everything up. The infrastructure spending will keep the government money flowing this year, but depending on a strong consumer as pent-up savings run down and interest rates go up is a foolish assumption."

The latest economic data comes as optimism builds that the U.S. can avoid a recession even as the Federal Reserve maintains its aggressive monetary policies. However, many economists have said that the idea of a "no-landing" is mostly wishful thinking.

Analysts note that the inverted yield curve continues to be a significant warning signal of a recession on the horizon. The yield on two-year bond yields is currently trading above 4.7%, near its highest level since 2007. At the same time, the 10-year yield is at 3.961. The spread between two-year and 10-year yields is at its widest level in 40 years.

By Neils Christensen

For Kitco News

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