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Gold Rebounds As Q2 GDP Slumps, Beats Expectations

July 26, 2019 at 14:09 by Andrew Moran

Gold futures have rebounded after turning red earlier in the trading session on new data that showed the US economy cooled down in the second quarter. Despite beating market expectations, the tepid slowdown could give the Federal Reserve further ammunition it needs to pull the trigger on a rate cut at next week’s Federal Open Market Committee (FOMC) policy meeting.

August gold futures tacked $6.90, or 0.49%, to $1,421.60 per ounce at 14:00 GMT on Friday on the Comex division of the New York Mercantile Exchange. This comes one day after gold prices recorded their sharpest drop in nearly a month. The yellow metal is on track for a slight weekly decline of about 0.3%, but it is still up more than 10% on the year.

Silver, the sister commodity to gold, is also rallying to finish off the trading week. September silver futures advanced $0.08, or 0.5%, to $16.48 per ounce. The white metal is poised for a weekly gain of roughly 1.6%, lifting its year-to-date increase to just under 6%.

In the second quarter, the gross domestic product (GDP) rose 2.1%, down from 3.1% in the first quarter, reports the Bureau of Economic Analysis (BEA). The median estimate was 1.9%.

While analysts say that the report does indicate the economy should prepare for a slowdown in the second half of 2019, there were two interesting positives in the BEA data.

The first is that consumer spending 4.3%, driven by higher purchases of automobiles, food and drinks, and clothing. This is a positive trend for an economy that is 70% driven by the consumer.

The second is that if inventories did not decline $44.3 billion and remained neutral, then the economy would have advanced at a 3% clip in Q2.

That said, there were plenty of bearish signals within the government report: fixed investment declined 0.8%, investment fell 11%, spending on equipment rose a tepid 1%, and outlays tumbled 1.5%.

Still, investors do not seem too concerned as US financial markets are trading higher. Also, the US dollar is strengthening 0.12% to 97.94, which is bad news for dollar-denominated commodities because it makes it more expensive for foreign investors to purchase.

Does this mean the US central bank will cut interest rates at next week’s FOMC policy meeting? Because Fed officials have aired their concerns about a pending slowdown in the world’s largest economy, traders are anticipating a quarter-point reduction in interest rates as early as this month. But additional CME Group FedWatch tool data show more than half the market expects at least two rate cuts sometime this year.

In other metal markets, September copper futures shed $0.01, or 0.4%, to $2.69 per pound. September platinum futures decreased $4.20, or 0.48%, to $869.80 per ounce. September palladium futures dropped $8.90, or 0.58%, to $1,525.00 an ounce.

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