GoldPrice.

Gold prices have risen on Friday, initially sinking into negative territory before climbing again following the report that US gross domestic product rose by an annual rate of 3.2% (0.8% for the three-month period) for the first three months of 2019. GDP growth greatly outperformed expectations of just 2%, but there are concerns that inventory-building contributed to growth which may not be sustainable.

Key Takeaways

• Following 2.2% growth in Q4 2018, Q1 2019 growth has been measured at 3.2%.
• The strong reading defies expectations of a slowdown due to the trade war, government shutdown, and struggling manufacturing and housing industries among other factors.
• This marks the first time since 2013 that quarterly GDP growth has topped 3%.

Q1 2019 was a turbulent period for the US economy, and analysts had predicted stale growth of 2% - 2.5% for that period. The longest-ever US government shutdown was expected to significantly hamper economic growth, with a 35 day standoff extending from December through January over a dispute between the Trump administration and congress regarding funding for building a wall on the southern border.

The trade war, still unresolved, has impacted like manufacturing, hindering growth, but overall the economy performed well. A strong labor market, stimulated with $1.5 trillion tax cuts, propped up other parts of the economy such as housing which suffered under multiple interest rate hikes introduced in 2018. A laxer fiscal policy put in place by the Federal Reserve has given the industry some breathing room, allowing for mild recovery.

GDP Analysis – Not What It Seems

Disposable personal income grew 3%, and prices excluding the volatile components of food and energy rose 1.3%. Overall, prices grew by 0.8% in Q1.

A fall in imports has boosted US GDP growth, perhaps indicating that the trade war has dampened demand for overseas goods.

Chart for the UK audience. US GDP growth of 0.8%q/q in Q1 2019, with half of the contribution to growth coming from inventories & net trade (predominantly via falling imports). Household consumption contributed 0.2% & private investment 0.1%. pic.twitter.com/qd6tjcTSv7

— Rupert Seggins (@Rupert_Seggins) April 26, 2019

There are concerns that inventory-building among businesses may have played a major role in the GDP figure, and that when companies run down those inventories it will affect growth for Q2. Consumer spending growth slowed to 1.2% after growing 2.5% in Q4 2018, and business spending on equipment only grew by 0.2% which was the weakest growth since autumn 2016.

Headline GDP was much stronger than expected in the first quarter. But final private sales, a measure of the underlying pace of growth, suggests an ongoing slowdown.https://t.co/QGxbBaoJ1V pic.twitter.com/4hTOnG1u6Z

— Ben Casselman (@bencasselman) April 26, 2019

Market Reaction

Gold prices dipped slightly following the news, entering negative territory, but bounced shortly afterward to break through the $1,280/oz line. Spot gold last traded at $1,283.39/oz and up 0.59%.