Forex Analysis & Reviews: 29.10.2021 - Gold rises on US GDP data

29.10.2021 09:34 AM

Gold rises on US GDP data

US GDP data was released on Thursday. It showed a slowdown in the country's economic growth, causing the dollar to fall and gold prices to jump.

During yesterday's trading, the metal once again managed to break the $1,800 level and ended the session above that mark.

The bullion prices were supported by US gross domestic product data for the third quarter released on Thursday. The country's Commerce Department reported GDP growth of just 2% year-on-year, compared to a 6.7% increase in April-June.

According to experts, the spread of the delta strain of coronavirus is the reason for the slowdown of the US economic recovery. The outbreak of the disease in a number of countries has again triggered supply disruptions.

"Economic growth slowed in the US and that would support the gold market in the perspective that the Federal Reserve would be less likely to either taper asset purchases at a quicker pace or the outlook for higher interest rates would be curtailed," said David Meger, director of metals trading at High Ridge Futures.

The possibility that the US Federal Reserve will not tighten its monetary policy too aggressively, even if inflation remains high, had a negative impact on the US currency.

The dollar index fell 0.6% against its major counterparts on Thursday, hitting a one-month low. Also, US 10-year government bond yields showed a downward trend amid concerns about the global recovery.

All these factors served as an excellent boost for gold, which has already gained in two sessions and is now heading for its third consecutive weekly gain. Yesterday, December gold rose $3.80, or 0.2%, to settle at $1,802.60 an ounce. The final price was $1,802.60.

The metal last managed to close above a key level on Monday. It was boosted by fears of global inflationary growth.

According to Meger, gold is considered an inflation hedge. Therefore, price increase is the catalyst that will help the precious metals market to move forward. He think that we will see rise in the price of gold and silver in the coming weeks.

"Gold may hit a fresh record high in the next 12 months as investors seek haven from a buildup of inflationary pressures," Sean Boyd tells Bloomberg.

"Inflation is not transitory," Boyd said, noting that costs pressures are "more sticky" than three months ago. "We'll see higher inflation as we move down the road, which is generally a very favorable environment for gold."

Boyd expects bullion to surpass the current record of $2,075.47 an ounce reached in August last year.

As for the precious metal's short-term outlook, all investors' attention is now focused on the US Federal Reserve's meeting on November 2-3. The Fed is expected to announce the start of a reduction in bond purchases.

"Fed tapering should already be well and truly discounted, although there is bound to be a short-lived knee-jerk reaction to the Fed's statement next Wednesday – there always is!" StoneX analyst Rhona O'Connell said.

Right now, the more important pricing factor for the asset is an interest rate hike. And in the light of the latest US GDP data, no sooner should this issue be expected, which is good for bullion.

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