Gold's Next Move Hinges on GDP Data

The first-quarter gross domestic product report that will be released April 28 could hold significant implications for gold prices. These have fallen somewhat in the wake of the first round of the French election last weekend. Equities, meanwhile, have rallied on the failed Schadenfreude trade that had been weighing on stocks and the euro. But gold prices have remained relatively supported. That’s because expectations for the Federal Reserve have quietly become more dovish, and the concern about first-quarter GDP has increased. Uncertainty around U.S. fiscal policy is also raising the stakes. There is much hope that the Trump administration will implement meaningful corporate tax cuts. If those do not come, gold prices are likely to rally sharply.

Prices for the precious metal, which is usually viewed as a safety asset, have risen since December 2016, despite significantly higher levels of consumer confidence and purchasing manager indices. Every quarter, my firm, Prestige Economics, performs a benchmarking of our clients. In October 2016, 86 percent expected the next recession would begin in 2017, with 100 percent expecting the next downturn to start by the end of 2018. These expectations have become significantly more optimistic over the past six months. In our April survey, only 11 percent of our corporate clients said they expected a contraction to start in 2017, and only 32 percent expect the next recession start by the end of 2018. This confirms the increased optimism reflected in the ISM Manufacturing Index, Consumer Confidence, and the MHI Business Activity Index. So why are gold prices higher?