GDP Report Fires Up Gold: Reaction Or New Uptrend?


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Gold prices fired up Wednesday after the Federal Reserve left its stimulus plan in place and the Commerce Department reported the U.S. economy shrank 0.1% in the fourth quarter instead of expanding 1.1% as Wall Street expected.

The dollar weakened and investors flocked to safe-haven assets. Short sellers, betting on falling prices, closed their positions by buying them back, thereby boosting prices, and bargain hunters swooped in.

Spot gold prices jumped 0.75% to $1,676 an ounce.

SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, rose 0.75% to 162.19, though it ended off its high of 163.04. It regained its 200-day moving average, suggesting a weak uptrend has resumed. But it still trades below the 50-day average, which it has to break above to confirm a solid uptrend.

"A weak GDP report implies that any thought of a late-2013 reduction in QE (quantitative easing) is off the table, as the Federal Reserve will have to continue to prop up the economy," Don Vandenbord, a portfolio manager at Fleming Island, Fla.-based Camarda Wealth Advisory Group, said in an email. "This will cheapen the U.S. dollar, which is bullish for precious metals."

PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the greenback against a basket of major foreign currencies, fell 0.41% to 21.64 -- just pennies shy of a 52-week low.

The dollar is finding a floor, which is bearish for precious metals as they typically move in opposite directions, says Andrew Norman, an analyst at He expects gold to drop after a brief uptick.

The slight GDP decline was the first since the 2009 recession. It should not be seen as a prelude to further weakness as Q3 growth was exceptionally strong at 3.1%, says Nigel Gault, chief U.S. economist at IHS Global Insight.

GDP shrank because of inventory accumulation and a 22.2% cut in defense spending, which each took out 1.3% from growth.

"The incoming data point to continued growth, and we expect GDP growth to rebound to around 2% in the first quarter," Gault said.

"Consumer spending growth improved to 2.2% from 1.6%, while residential investment growth accelerated to 15.3% as the housing recovery gathered pace," he added. "Business fixed investment rebounded 8.4% after dropping 1.8% in Q3. Only exports disappointed, dropping at a 5.7% annual rate."

The Fed's Take

The Fed said after its meeting Wednesday that it's maintaining $85 billion in monthly bond buys, noting that it sees "downside risks to the economic outlook."

It said without "sufficient policy accommodation" or economic stimulus, there might not be enough economic activity to improve the labor market.

"Continued, aggressively accommodative government fiscal and monetary policies will favor hard assets such as gold, over financial assets, such as stocks and bonds," Tom Winmill, manager of Midas Fund , said in an email.

Market Vectors Gold Miners ETF ( GDX ), trading near a 52-week low, initially rose but ended down 0.69% at 41.96. It trades deep below the 200-day line, so any upside move would be a countertrend rally. Spot silver prices climbed 2.03% to $32.02 an ounce.IShares Silver Trust ( SLV ) popped 1.98% to 30.92. It regained its 50-day line, bouncing back into a confirmed uptrend.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: GDX , GLD , SLV , UUP

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