Gold price advances as weak US Q1 GDP raises concerns over US economic outlook

NEW YORK (April 25) Gold price (XAU/USD) remains well-supported above the crucial support of $2,300 in Thursday’s early New York session. The United States Bureau of Economic Analysis (BEA) has reported a sharp decline in the Q1 Gross Domestic Product (GDP) growth. The US economy expanded at a significantly slower pace of 1.6% from expectations of 2.5%. In the last quarter of 2023, the economy grew strongly by 3.4%.

A significant fall in the GDP growth rate is unlikely to scrap the speculation for the Fed to achieve the so-called soft landing, in which the central bank achieves price stability without triggering a recession. However, this indicates that the economy struggles to bear the consequences of higher interest rates by the Federal Reserve (Fed) and is expected to dampen investors' confidence in the strong economic outlook.

This is expected to put more pressure on the US Dollar. Investors should note that S&P Global's preliminary US PMI report for April also showed weak orders and the Manufacturing PMI fell below the 50.0 threshold. 

Going forward, investors will focus on the core Personal Consumption Expenditure Price Index (PCE) data for March, which will guide the next move in the Gold price. A significant change in the above-mentioned economic indicator will likely force traders to reassess expectations for the timing of Fed rate cuts. Currently, financial markets anticipate the first cut in September.

Daily digest market movers: Gold price aims for firm footing 

• Gold price edges higher above $2,320 as the US Dollar extends its correction. The US Dollar faces selling pressure as weak preliminary PMI numbers for April combined with slower than expected Q1 GDP growth has raised concerns over the US economic outlook. On Tuesday, the survey signalled that new business inflows in April fell for the first time in six months.
• The week is full of volatile events as the core PCE inflation data will follow the Q1 GDP data – the Fed’s preferred inflation measure – for March, which will be published on Friday. Core PCE inflation is expected to have grown steadily by 0.3% on month, with annual figures softening to 2.6% from the 2.8% recorded in February.
• The underlying inflation data will significantly influence the Fed’s interest rate outlook ahead of its next meeting on May 1. In the May policy meeting, the Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50%.
• The near-term outlook for Gold is still uncertain as safe-haven demand has weakened due to waning fears of widening Middle East conflict. Also, Fed policymakers see no urgency for rate cuts due to higher inflationary pressures and tight labor market conditions

FXStreet