- The US dollar reverses losses, making gold more expensive for overseas buyers.
- The US economy makes an unexpected recovery in Q3.
- US consumer spending fell to 1.4%, indicating reduced demand.
Gold (GC) futures prices declined in choppy trading as a gain in the dollar offset support for the precious metal. Gold had been rising on predictions that the Federal Reserve will scale back its interest rate hikes during a policy meeting next week.
“Gold seems to be focused on the dollar and technicals here, along with an element of profit-taking from yesterday,” said Bart Melek, head of commodity markets strategy at TD Securities.
After falling to more than a one-month low in the previous session, the dollar increased 0.6% against its rivals, making bullion less appealing to foreign purchasers.
Data revealed that the US economy, which had contracted in the first half of the year, recovered more than anticipated in the third quarter amid a decrease in the trade deficit. However, the substantial rate hikes made by the Fed restrained consumer spending.
The economy’s return to growth following two consecutive quarters of GDP contractions provided proof that the economy was not in a recession. However, the risk of one has grown as the Fed intensifies its rate hike program to combat the fastest-rising inflation in 40 years.
After declining at a 0.6% pace in the second quarter, the gross domestic product rose at an annualized rate of 2.6% last quarter.
Consumer spending growth, which makes up more than two-thirds of all economic activity in the United States, dropped from the 2.0% rate seen in April to June to 1.4%.
For the week ending October 22, the number of initial claims for unemployment benefits climbed by 3,000 to a seasonally adjusted 217,000. Even while there have been indications of layoffs at businesses, mainly in interest rate-sensitive sectors, claims have remained significantly low.
At its policy meeting on November 1-2, the US central bank is expected to hike its benchmark overnight interest rate by another 75 basis points, with a possible lower increase in December. The opportunity cost of holding zero-yielding bullion rises due to US rate increases which could mean lower prices for gold futures.
“It’s probably too early to talk about stopping rate increases … we don’t expect a pivot because inflation will continue to be a problem through much of next year,” Melek added.
