Gold bounces back from bumpy week as US GDP falls 1.4%

With the US GDP contracting by 1.4%, the price of gold has returned towards the $1,900 mark.

A Commerce Department report notes that “the decline in real GDP reflects lower private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, have increased”.

As a safe-haven asset, gold is seeing increased demand amid a myriad of global economic challenges. Record inflation, an ongoing COVID crisis, and the Russian invasion of Ukraine are all impacting the market.

Gold had a turbulent week as the dollar index hit a five-year high of 103.28. The precious metal is often impacted by rising US short-term interest rates and higher yields, which increases the opportunity cost of holding bullion.

Despite the choppy week, Marc Desormeaux, senior economist at Scotiabank, said he was increasing his forecast for the precious metal. “Gold investors may be betting that the Fed will avoid the more aggressive course of policy action later this year for fear of slowing economic growth too dramatically; it would likely keep inflation – against which bullion is seen as a hedge – higher for longer,” he said. “The [gold price] the upgrades reflect upward revisions to inflation forecasts since January 2022 and our expectation that negative real rates will persist longer than expected.

Gold had a strong first quarter, with demand up 34% according to a quarterly trends report from the World Gold Council. “We believe the strength in the price of gold, weakness in the stock market, rapidly rising inflation expectations and unexpected geopolitical events during the quarter were the main drivers of this demand, even despite lower rates. higher nominal,” the report said.

The report also notes that retail investment and gold ETF inflows have both been strong, but demand for futures and over-the-counter contracts has been subdued, suggesting that investor participation in gold is currently not overcrowded. As central banks seek to reduce risk amid heightened uncertainty, gold could attract additional demand.

Investors can gain exposure to physical gold through Sprott Physical Gold Trust (PHYS). For a bet on gold stocks, investors can watch the Sprott Gold Miners ETF (SGDM) or the ETF Sprott Junior Gold Miners (SGDJ).

For more news, insights and strategy visit the Gold and silver investment channel.