Gold rises as US GDP figure shows economic contraction

Otmane El Rhazi from The Bullion Desk.

Gold prices climbed after the release of US GDP data confirmed expectations from market participants that the economy constricted during the strong winter.

Gold for August delivery on the Comex division of the New York Mercantile Exchange increased $1.40 or 0.1 percent to $1,189.50 per ounce. Trade has ranged from $1,185.7 to $1,193.3

The second estimate of US first-quarter GDP came in at -0.7 percent, slightly better than the -0.8 percent forecast but down significantly from 0.2 percent in the first reading.

“These are the adjustments we were expecting,” Steve Liesman, CNBC’s senior economics reporter. “It was a lousy quarter and the debate now shifts to the strength of the second quarter snap back, which so far look to be modest at about 2.6 percent. This isn’t a 3 percent economy, it more like a 2-2.5 percent economy.”

This low GDP reading could make Federal Reserve’s 2015 forecast for 2.5 to 3.0 percent growth difficult to achieve. The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.

At its last meeting, the Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely dependent on data so a rate increase could happen at any future meeting.

“Unlike 2014, when growth snapped backed after a dismal first quarter as well, the stronger dollar and spending cuts by energy companies remain a drag right now,” Edward Meir, analyst at INTL FCStone, said. “All this puts the Fed in a rather awkward position of going through with rate increases (or at least one) in what are sub-optimal growth conditions, but the central bank really has no choice at this point, but to proceed.”

Meanwhile in equities, Germany’s DAX and France’s CAC-40 were each down 1.2 percent, while the euro was 0.2 percent stronger at $1.0970 against the dollar.

In other data today, German retail sales at 1.7 percent bettered expectations as did the Spanish flash CPI at -0.2 percent and the Italian preliminary CPI at 0.2 percent, while French consumer spending dropped short at 0.1 percent. Italian GDP at 0.3 percent was the first quarter of growth since the autumn of 2013.

Later today will see Chicago PMI, forecast at 53, and Michigan consumer sentiment readings, expected at 89.

As for other precious metals, Comex silver for July delivery was last up more than five cents to $16.725 per ounce. Trade has ranged from $16.640 to $16.850.

Platinum futures for July delivery on the Nymex fell $0.20 to $1,116.1 per ounce, while the most-actively traded palladium contract was at $781.75, down $3.05.

(Editing by Tom Jennemann)

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