With the U.S. GDP contracting 1.4%, gold prices throttled back towards the $1,900 mark.
A Commerce Department report notes that “The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased.”
As a safe haven asset, gold is seeing increased demand amid a myriad of global economic woes. Record-breaking inflation, an ongoing COVID crisis, and the Russian invasion of Ukraine are all impacting the market.
Gold had a bumpy week as the dollar index reached a five-year high of 103.28. The precious metal is often impacted by rising U.S. short-term interest rates and higher yields, which increase the opportunity cost of holding bullion.
Despite the turbulent week, Marc Desormeaux, senior economist at Scotiabank, said that he is increasing his forecast for the precious metal. “Gold investors may be betting that the Fed will avoid the most aggressive path of policy action later this year for fear of slowing economic growth too significantly; that would presumably keep inflation—against which bullion is viewed as a hedge—higher for longer,” he said. “The [gold price] upgrades reflect upward revisions to inflation forecasts since January 2022 and our expectations that negative real rates will persist for longer than previously anticipated.”
Gold has had a strong Q1, with demand rising 34% according to a quarterly trends report from the World Gold Council. “In our view, gold price strength, equity market weakness, rapidly rising inflation expectations and unexpected geopolitical events during the quarter were the key drivers of this demand, even in spite of higher nominal rates,” the report says.
The report also notes that retail investment and gold ETF inflows were both strong, but futures and OTC demand were muted, suggesting that investor participation in gold is currently not overcrowded. As central banks seek to reduce risk amid heightened uncertainty, gold could attract further demand.
Investors can get exposure to physical gold through the Sprott Physical Gold Trust (PHYS). For a gold equities play, investors can look at the Sprott Gold Miners ETF (SGDM) or the Sprott Junior Gold Miners ETF (SGDJ).
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