- Data revealed a 4.9% annualized growth in US gross domestic product for the last quarter.
- New claims for unemployment benefits in the US inched up last week.
- The market predicts an 83% chance of a Fed rate cut by March, up from 79%.
Gold prices rose on Thursday as US economic data heightened expectations of a Federal Reserve interest rate cut in March next year. Data revealed a 4.9% annualized growth in US gross domestic product for the last quarter, a revision from the initially reported 5.2%. Moreover, there was a slight increase in weekly jobless claims.
Spot gold (Source: Bloomberg)
Tai Wong, an independent metals trader in New York, noted, “GDP data was soft, and gold surged. The market is anticipating a looming Fed pivot.”
However, new claims for unemployment benefits inched up last week, indicating a potential economic resurgence as the year concludes.
The smaller-than-expected rise in weekly jobless claims on Thursday followed recent positive indicators like unexpectedly increased retail sales in November and high levels of single-family housing starts and building permits. These reports led economists to raise their growth projections for the fourth quarter, reducing concerns of a stalled economy at the start of the quarter.
Meanwhile, inflation news was positive, with Thursday’s data showing more progress towards the Federal Reserve’s 2% target in the third quarter than previously thought. The government’s report confirmed accelerated economic growth in the third quarter, though lower than initially reported.
Despite the downward revision, this remains the fastest expansion since the fourth quarter of 2021, defying economists’ expectations for unrevised GDP growth. The economy has been growing above the non-inflationary threshold of 1.8%. The downward revision last quarter was due to poor consumer spending and inventory investment.
The market now predicts an 83% chance of a Fed rate cut by March, up from 79% before the latest data. Lower rates reduce the opportunity cost of having non-yielding bullion.
The US dollar fell 0.5%, and 10-year Treasury yields stayed close to a five-month low. Despite some officials opposing immediate cuts, the Fed’s dovish stance has led to expectations of multiple rate cuts in 2024.
Attention has shifted to Friday’s US core personal consumption expenditure (PCE) report. David Meger, a director of metals trading at High Ridge Futures, expects gold to sustain levels above $2,000. He cited ongoing expectations of easing inflationary pressures supporting sideways to higher movements in gold.