By Barani Krishnan
Investing.com - Gold bulls are wagering they have little to lose in their bets for a Fed rate cut, to the extend that a better-than-expected Q2 GDP hasn’t dissuaded those long on the yellow metal in anticipation of the first U.S. monetary easing in a decade.
Spot gold, reflective of trades in bullion, traded at $1,419.74 per ounce by 2:33 PM ET (18:33 GMT), up $5.48, or 0.4%, on the day.
Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $4.60, or 0.3%, at $1,419.30.
For the week though, spot gold dropped by 0.4% while Comex futures slid by 0.5%. Gold futures in New York are up about 10.8% for the year.
Those losses came after gold suffered its sharpest one-day slide in three weeks on Thursday when the European Central Bank decided to hold on to rates instead of adopting a cut as some expected.
The prospect of lower interest rates benefits non-yielding bullion.
Expectations that the Federal Reserve will cut rates by at least 25 basis points at its July 30-31 policy meeting powered a solid run across markets this month, helping gold hit six-year highs above $1,450.
Yet, the Commerce Department’s report on Friday that U.S. gross domestic product growth expanded at a 2.1% annualized rate in the second quarter, higher than the forecast 1.8%, made some wary that the Fed might hold back from an immediate easing.
The advanced reading for second-quarter GDP saw growth in the U.S. slow from 3.1% in the first three months of the year to 2.1%, better than the expected drop to 1.8%.
But Michael Hewson, chief market analyst at CMC Markets in London, said the headline growth figure, personal consumption expendintures index of 2.3% and core PCE of 1.8% were all good numbers.
“Remind me why the Fed needs to cut again?” he tweeted. “If the Fed does cut next week, I’m struggling to see how there won’t be some form of dissent.”
Markets have fully priced in expectations that the Fed will cut interest rates by 25 basis points on July 31, but speculation has been fluctuating over a more aggressive 50 basis-point cut.
Those odds fell to 19.4% after the GDP report came out, compared to 23.5% ahead of the release.
Some argued that the stronger-than-expected second quarter growth would not derail the Fed’s plans for a rate cut.
"This is just what the market needed, not so soft that the economy is slowing down precipitously and not so strong that the Fed is going to reverse course," said Art Hogan, chief market strategist at National Securities in New York.
"We expected bad earnings and bad GDP numbers, but an upside on both is something markets are going to embrace today."