During Thursday’s early New York session, the price of gold (XAU/USD) remained above the crucial support level of $2,300 as the US Dollar and bond yields strengthened following the release of key economic data by the United States Bureau of Economic Analysis (BEA).
The Q1 Gross Domestic Product (GDP) Price Index showed a substantial increase to 3.1% from the previous reading of 1.7%, heightening concerns that the Federal Reserve (Fed) might postpone rate cuts later in the year. The US Dollar Index (DXY), tracking the USD against major currencies, surpassed 106.00, while 10-year US Treasury Yields surged to 4.70%. Historically, higher yields on interest-bearing assets elevate the opportunity cost of holding gold investments.
Despite the spike in the price index, anxieties persist about interest rates remaining elevated given a sharp decline in GDP growth. The US economy expanded at a slower pace of 1.6% compared to expectations of 2.5%, following robust growth of 3.4% in Q4 2023.
While a significant drop in GDP growth doesn’t necessarily dispel speculation about a Fed-engineered “soft landing,” it underscores the economic challenges posed by higher interest rates. This could dampen investor confidence in the US economic outlook.
Looking ahead, market focus will turn to the core Personal Consumption Expenditure Price Index (PCE) data for March, which will influence the next trajectory of gold prices. Any notable deviation in this economic indicator is likely to prompt traders to reassess expectations for the timing of Fed rate cuts. Currently, financial markets anticipate the first rate cut to occur in September, pending further economic data and Fed policy cues.
