Gold prices pared losses Wednesday after U.S. economic growth in the first quarter was weaker than expected, bolstering the case that the Federal Reserve would deliver a dovish message in its monetary policy statement later in the day.
Gold for June delivery, the most actively traded contract, was recently down 0.2% at $1,211.70 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices were trading around $1,208 an ounce before the data.
The U.S. economy slowed sharply at the start of the year as businesses slashed investment, exports tumbled and consumers showed signs of caution, Wednesday’s data showed. Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 0.2% seasonally adjusted annual rate in the first quarter, the Commerce Department said. Economists surveyed by The Wall Street Journal had expected growth of 1% in the first three months of this year.
With growth slowing to a crawl, investors believe the Fed is much less likely to raise interest rates in the next few months. That’s good news for gold, which struggles to compete with yield-bearing investments when borrowing costs rise. Most investors now expect the Fed to delay its rate increase until September, if not later.
“Unless every economic report for the next few months is strong, you will get a rate increase in September. Otherwise, it’s only happening in 2016,” said James Cordier, a principal at OptionsSellers.com. “The landscape of low interest rates will give gold scope to rally.”
By Ira Iosebashvili