On Thursday, the initial value of the annualized quarterly rate of real GDP in the first quarter of the United States recorded -1.4%, the first negative value since the second quarter of 2020. Spot gold rose by $13 in a short-term and is now reported at $1,892.62 per ounce. Spot silver’s intraday decline narrowed to 0.3% at $23.18 an ounce. The U.S. dollar index was down more than 10 points in the short-term at 103.71.
U.S. stock index futures fell short-term, the Nasdaq futures rose narrowed to 1.6%, the S&P 500 futures rose 1.17%, and the Dow futures rose 0.6%.
Although the market had been prepared for the poor data performance, the negative reading was more than many expected. A sharp slowdown in growth in the world’s largest economy will lead to fears of a recession that could spread and spark a broad-based risk aversion. In this case, gold bulls may find some temporary relief.
CNBC commented that the U.S. gross domestic product unexpectedly fell by 1.4% in the first quarter, marking a sudden reversal of the best performance of the U.S. economy since 1984. In the first three months of 2022, a combination of factors affected economic growth. Rising infections of the Omicron variant have hampered economic activity at the start of the year, while inflation has soared to its highest level since the early 1980s and the Russian-Ukrainian conflict has also brought the economy to a standstill.
While economists still largely don’t expect the U.S. to slip into a full-blown recession, the risks are rising. Goldman sees a roughly 35% chance of negative growth a year from now. In a forecast, Deutsche Bank sees the possibility of a “severe recession” in the U.S. economy in late 2023-early 2024, the result of the Federal Reserve’s tightening of policy to curb inflation, far more strongly than forecasters currently expect.
Institutional analysis said the U.S. economy unexpectedly shrank in the first quarter, as a ballooning trade deficit and weak inventory growth overshadowed otherwise solid consumer and business demand conditions. Net exports and inventories cut overall growth by about 4 percentage points. Shrinking government spending also weighed on GDP. However, actual final sales to domestic consumers rose 2.6% on an annualized basis, an improvement from 1.7% in the fourth quarter of last year.
The Federal Reserve is expected to take a more aggressive policy response next week, with the largest rate hike expected since 2000, with inflation at a four-decade high. But some experts believe that this round of aggressive rate hikes by the Fed will trigger a recession. The Fed is faced with the dilemma of slowing the economy enough to control inflation, but not enough to cause a recession.
It’s worth noting that GDP is ultimately a relatively lagging indicator , and it may not be enough to confirm that the U.S. economy can’t withstand aggressive rate hikes by the Fed. In view of the Fed’s previous determination to curb inflation, Bridgewater’s chief investment strategist Rebecca Patterson suggested shorting all maturities of US Treasuries in an interview on Tuesday, believing that the Fed’s current rate hikes are far from enough. Patterson said in an interview that if the U.S. is to curb inflation, interest rates must reach much higher levels than Powell expects.
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