Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinNew York spot gold gained 0.2% to close near $2,330 despite rising Treasury yields as the dollar fell on weak US GDP data and traders braced for a hotter-than-expected PCE index for March. Silver was virtually unchanged at $27.35 an ounce.

The economy slowed in the first quarter, with GDP rising just 1.6%, the slowest pace in nearly two years. The primary headwinds were rising imports, falling government spending, and a build-up of inventories. Stripping out these factors, growth was a far more respectable 3.1%.

More surprising to the markets, core inflation surged 3.7% in Q1 after rising 2% in Q4, as measured by the Fed's preferred measure, the core PCE. It also increases the likelihood that tomorrow's release of the PCE index for March will be significantly higher than most forecasts.

While the slower GDP probably understates the actual strength of the economy, the high core PCE could change the Fed's outlook on inflation and its calculus for rate cuts going forward.

In addition, first-time jobless claims fell by 5,000 to 207,000 last week, the lowest level since mid-February, signaling that the labor market remains more robust than the Fed would like.

Benchmark 10-year Treasury yields jumped above 4.7% on the data as traders speculated that the Fed may be less inclined to begin cutting rates soon. Higher yields are a headwind for gold because they increase the opportunity cost for holding it instead of bonds for safety.

Fed fund futures trading now puts the odds of a quarter-point cut in September at less than 57%, down from 70% yesterday.

The dollar fell 0.3% against major rivals as currency traders responded to the weaker GDP numbers rather than inflation. A softer dollar typically supports gold and other commodities by making them cheaper overseas.

Platinum added 0.5% while palladium lost 2.6%.

At the New York spot close: gold gained $5.30 to $2,329.80; silver was flat at $27.35; platinum picked up $.90 to $913.60; and p0alladium shed $26.30 to $982 an ounce.