- Investors are growing more worried that a recession will occur in 2023.
- Initial claims for unemployment benefits increased by 2,000 in the US.
- US gross domestic product expanded at an annualized rate of 3.2% last quarter.
Gold prices recovered slightly on Friday after a big collapse. Robust economic figures fanned concerns that the Federal Reserve’s monetary policy may remain tight for longer than many market participants may have hoped. This sent gold plunging and the dollar making some gains.
Investors are growing more worried that a recession will occur in 2023, according to Sam Stovall, chief investment strategist at CFRA Research in New York.
Before the bell, data revealed an upward revision to the GDP and lesser unemployment benefit claims than expected. While the economy recovered more quickly than anticipated in the third quarter, the claims for unemployment benefits indicate a still-tight job market.
The Federal Reserve may keep raising interest rates to a higher level and maintain them there for a while as it tries to fight inflation because of the labor market’s strength. This strength was also highlighted by some shrinking unemployment rolls in early December after they had largely increased since October.
To get inflation back to its objective of 2%, the US central bank is attempting to cool demand for everything from housing to labor.
The Labor Department said on Thursday that initial claims for state unemployment benefits increased by 2,000 to a seasonally adjusted 216,000 for the week ended December 17, maintaining the majority of the preceding week’s fall.
According to the third estimate of GDP released by the government, the gross domestic product expanded at an annualized rate of 3.2% last quarter. It was an increase from the 2.9% pace that was reported the previous month. The second quarter saw a 0.6% rate of economic contraction.
Such news, coming at a time when the central bank is tightening policy, feeds investor concern that the Fed funds target rate may continue to rise and remain longer than anticipated, increasing the likelihood of an economic slowdown. This would also hurt the non-yielding yellow metal.
A flight to safety helped the safe-haven US Dollar edge higher amid concerns about long-term high-interest rates. In contrast, Gold prices fell as higher interest rates would only increase the opportunity cost of owning non-yielding metal. A big recovery in Gold prices can only be expected when the Fed eases up on rate hikes.