Gold trading reminder: The final value of U.S. third-quarter GDP dragged down the dollar, gold prices rose to nearly three-week highs, and "decisive battle" PCE data

On Thursday (December 21), after the U.S. GDP growth rate was lowered in the third quarter, the benchmark 10-year U.S. Treasury bond yield fell below 3.9%, the lowest level since July, and the U.S. dollar index fell to a new low in nearly five months, pushing Gold prices rise. In early trading in Asia on Friday, gold prices hit a high of $2,054.86 per ounce, a new high since December 4.

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(Spot gold trend chart)

Spot gold closed up 0.71% on Thursday at $2,045.83 per ounce.

The settlement price of COMEX February gold futures closed up 0.18% at $2,051.3 per ounce.

[Market News Analysis]

U.S. third-quarter GDP has been revised down to 4.9%, slightly lower than the 5.2% in the second estimate, but in line with the 4.9% originally reported in the advance estimate. Today's PO estimate is based on more complete source data than last month's PO "second" estimate. The downgrade mainly reflects lower consumer spending. Imports, a subtraction in GDP calculations, were also revised down. But it is worth noting that the increase in real GDP (up 2.1%) reflected increases in consumer spending, private inventory investment, exports, imports, state and local government spending, federal government spending, residential fixed investment, and nonresidential fixed investment.

A sticky underlying inflation report could temper expectations for an early rate cut from the Fed and force policymakers to keep rates on a restrictive track for longer until a return to 2% inflation is confirmed. It could also increase the dollar's appeal and benefit risk-sensitive assets.

The market's initial reaction after the news broke was to sell off the U.S. dollar sharply, which was already at a disadvantage due to rising expectations of a rate cut by the Federal Reserve. Few investors still believe the Fed won't cut interest rates sooner given the resilience of the U.S. economy. The U.S. dollar index continues to slide as gold prices attempt to resume their upward trend. U.S. PCE data is due tomorrow, which could leave the U.S. dollar index vulnerable.

Philadelphia Fed President Patrick Harker also pushed back on expectations for imminent cuts in borrowing costs. Harker said he expected a soft landing for the economy but warned that unemployment could rise modestly.

Gold is Bank Mitsubishi UFJ's most bullish call option, predicting that gold prices will hit a new all-time high in 2024. They believe uncertainty has allowed gold to dominate this week. They said, "Geopolitical tensions have become the main driver of the precious metals complex as the situation in the Middle East develops. The Red Sea has become a breeding ground for uncertainty, which appears to have put gold in the driver's seat. Renewed weakness in the US dollar has also helped gold prices hold higher and continues to rise. Fed policymakers struck a dovish tone this week, with most talking about the magnitude of rate cuts needed in 2024, with little pushback aside from the odd comment about monitoring future data. Fed was dovish last week The significant change in policy path reinforces calls from our U.S. rates strategists for rate cuts starting in early 2024. A friendlier Fed and a stronger U.S. dollar should act to remove fundamental barriers to gold's upside. In fact, gold is our most bullish forecast, Gold will reach new all-time highs in 2024 due to the triple role of Fed rate cuts, support from central bank demand and gold’s role as a geopolitical hedge of last resort.”

Economists at ANZ believe gold's recent gains are ahead of fundamentals. Stable interest rates and falling inflation could lead to higher real interest rates, limiting gains in the short term. They lowered their gold price forecast for the first quarter of 2024 to $1,950 per ounce. They said, “Weak U.S. economic data and slowing inflation indicate that the Fed’s monetary policy is restrictive enough to sustainably return inflation to target levels. The change in the Fed’s stance surprised the market, and gold prices rose to $2,135 per ounce. New highs. This looks overdone compared to our view of an easing cycle starting in the second half of 2024. This could dampen upward momentum. With the fed funds rate holding steady and inflation falling, risks to the upside for real rates appear to have increased . We expect real rates to rise by 100 basis points, with downside risks to gold due to higher opportunity costs of holding non-yielding assets. As a result, we have revised our Q1 2024 forecast downward to $1,950/oz."

Currently, market focus has turned to the U.S. core personal consumption expenditures (PCE) report due out on Friday.

[Friday’s trading day focuses on financial data and events (China Standard Time)]

①15:00 UK third quarter GDP annual rate final value, UK November seasonally adjusted retail sales monthly rate, UK third quarter current account

②21:30 Canadian October GDP monthly rate, US November core PCE price index annual rate, US November personal expenditure monthly rate, US November core PCE price index monthly rate

③23:00 The final value of the University of Michigan Consumer Confidence Index in December in the United States, the one-year inflation rate expectation in the United States in December, and the annualized total number of new home sales in the United States in November

④The next day at 02:00, the total number of oil drilling rigs in the United States for the week to December 22