Gold News

Gold Price Solid as Stocks, Bonds Wilt on GDP Inflation Shock

The GOLD PRICE held firm in London on Thursday, trading $100 below the new record high of a fortnight ago while stock and bond prices fell hard on news that the US economy is growing much more slowly than forecast so far in 2024 due to resurgent inflation.
Peaking at $2340 per Troy ounce shortly after the GDP shock, gold prices then edged back to $2330 as longer-term interest rates rose towards multi-year highs, adding to potential vulnerabilities in banking and finance.
Slowing to 4.8% in nominal Dollar terms, annualized growth in the world's largest economy sank to just 1.6% in real terms January-to-March on data from the Bureau of Economic Analysis – much worse than Wall Street's 2.5% consensus outlook – thanks to the price index for gross domestic purchases jumping by 3.1%.
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Almost twice the pace of GDP-price inflation seen in Q4, that rise was accompanied by 'core' inflation on the PCE index – the Federal Reserve's preferred measure – leaping to 3.7% after slowing to the Fed's 2.0% target in the back-half of 2023.
Chart of US GDP growth in current Dollar terms vs. GDP price index inflation (both annualized). Source: St.Louis Fed
Forecasts for year-end Fed rates jumped above 5.00% on the GDP shock, predicting barely 1 rate cut from the US central bank in 2024 after forecasting 6 cuts in January.
US stock markets fell hard, cutting 1.3% off the S&P500 and taking the Nasdaq 100 index of US-listed tech stocks 6.0% below late-March's record high after the owner of social-media giants Facebook and Instagram (Nasdaq: META) sank in overnight trade on vowing to spend $35-40 billion this year on AI.
Bond prices also dropped, driving up Washington's 2-year borrowing costs to 5.00% per annum and putting 10-year Treasury yields at 4.71%, also the highest since last October's spike to the highest since summer 2007, eve of the Western banking and debt crisis.
"Some [US] banks face funding pressures due to [outflows from] uninsured deposits," says bullion-market analyst Rhona O'Connell at brokerage StoneX, reviewing the latest Financial Stability Report from the Fed and noting echoes with spring 2023's 'mini-crisis' in regional banking.
"Structural vulnerabilities persist at money market funds [and] some other mutual funds [while] life insurers still held a high share of illiquid and risky assets," the US central bank warns.
"It would seem that the banking sector and the Fed are still working to mitigate risk," O'Connell goes on – pointing to booming sales of 'synthetic risk transfers' from banks to speculative hedge funds – but with 2024 bringing an "unprecedented number of national elections around the world [that is only] increasing [a] lack of confidence in leaders being able to navigate material risks.
"We continue to argue that this is a tailwind for gold."
Shanghai bullion prices had held flat overnight in Yuan terms at ¥547 per gram, boosting the premium to London quotes to $35 per ounce as wholesale gold demand in China – the precious metal's No.1 consumer, central-bank buying, importing and mining nation – continued to hold firm amid the country's ongoing economic and financial slump.
The UK gold price in Pounds per ounce moved sideways on Thursday at £1868, down 4.4% from Friday 12 April's all-time record gold high, as Euro gold held little changed for the day at €2177.
Commodity prices also flat-lined after the GDP data, holding close to 6-month highs as a group on Bloomberg's index, while silver – which finds over half its end-user demand from productive industry – held unchanged around $27.30 per Troy ounce.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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