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 (
), 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
PowerShares DB U.S. Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, fell 0.41% to 21.64 -- just pennies shy of a 52-week
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 BullAndBearMash.com. 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
"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 (
), 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 (
) popped 1.98% to 30.92. It regained its 50-day line, bouncing
back into a confirmed uptrend.