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(Kitco News)- Weaker-than-expected consumption is taking a toll on the US economy, which contracted more than expected in the first quarter.
The latest gloomy economic data is providing some support for the gold market as prices trade near session highs, but remain below key psychological levels at $1,850 an ounce.
On Wednesday, the Commerce Department said final readings of US Q1 GDP showed the economy contracting 1.6%. Economists were expecting GDP to remain stable with a fall of 1.5%.
“The update primarily reflects a decline in personal consumption expenditure (PCE), which was partially offset by an upward revision in private inventory investment,” the report said.
Prior to the report, the gold market was witnessing some minor technical buying and after the disappointing data, the prices have got further support. August gold futures were last trading at $1,833.30 an ounce, up 0.66% on the day.
Economists note that rising inflation continues to take a toll on consumers as they see their purchasing power dwindling.
The report said the final GDP price index rose to 8.2% from the 8.1% reported in the second estimate.
“Both a negative revision in spending and a higher revision in inflation should have made for a larger negative revision overall. This was offset by an upward revision in inventory,” said Adam Button, chief currency strategist at ForexLive.com.
Some economists have said the latest GDP data highlights the risk that the US economy is headed for a recession as rising interest rates exacerbate economic weakness. The Federal Reserve has said it will continue to aggressively raise interest rates to bring inflation back.
However, other economists remain optimistic that the US economy may survive a recession as the labor market remains strong.
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