GDP Contraction Garners Expectations for Fed Rate Cut Taking Gold Higher

Revised Third Quarter GDP Shows Growth Slowdown, Fueling Expectations of Federal Reserve Rate Cuts

Yesterday, the BEA (Bureau of Economic Analysis) released its third and final estimate for third quarter GDP. The report revealed that GDP increased at an annual rate of 4.9%, which is a downward revision from the previously reported numbers, which came in at 5.2%. The revised GDP report increases the expectation that the Federal Reserve will cut rates next year, and possibly increase the number of rate cuts in 2024.

“Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023 ), according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.1 percent. The GDP estimate released today is based on more complete source data than was available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 5.2 percent. The update primarily reflected a downward revision in consumer spending. Imports, which are a subtraction in the calculation of GDP, were revised down.”

Dollar Weakness Influences Gold Futures, Silver Sustains Upward Trend

The net effect was dollar weakness, treasury yields retreating, and bullish market sentiment for gold taking that precious metal higher. As of 4:55 PM EST, gold futures basis the most active February 2024 is fixed at $2057.80, after factoring in today’s gain of $13.40 (+0.66%).

A vast majority of today’s gains can be directly tied to dollar weakness. Currently, the dollar index is down 0.55% and fixed at 101.48. Silver has now had three consecutive respectable daily gains. The March 2024 futures contract of silver gained $0.65 (+0.26%) and is currently fixed at $24.695.

Anticipating the PCE Report: Inflation Metrics and Federal Reserve Policy Shifts

Lastly, on Friday, the government will release its latest report on inflation vis-à-vis the PCE (Personal Consumption Expenditures) price index. This is the preferred inflation gauge used by the Federal Reserve, specifically the core PCE which strips out food and energy costs. Yesterday’s GDP report indicated that the core PCE price increased at a 2% annual rate in the third quarter, this is the slowest inflation increase since the end of 2020.

It seems that the long-awaited pivot by the Federal Reserve from “higher for longer”, will possibly get to be titled “earlier and faster” with rate cuts potentially coming as early as March.

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Wishing you as always good trading,

Gary S. Wagner