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Metals Stocks: Gold settles back above $1,800 as U.S. GDP disappoints

Gold futures climbed on Thursday to settle above the $1,800 an ounce level, after data showing growth in the U.S. economy significantly slowed in the third quarter.

Prices for the metal got a lift as third quarter U.S. gross domestic product data missed expectations, easing concerns about a quicker liftoff in U.S. interest rates than expected, Chris Gaffney, president of World Markets at TIAA Bank, told MarketWatch. “Gold is widely seen as an inflation hedge, and rising inflation expectations should lend support to the price of precious metals.”

U.S. gross domestic product growth decelerated to an 2% annualized rate in the third quarter, down from a 6.7% rate in the April-June quarter, the Commerce Department said Thursday. 

The GDP miss will help justify Federal Reserve Chairman Jerome Powell’s arguments that “the economy is not in danger of overheating and interest rates will remain very accommodative for the foreseeable future,” said Gaffney. 

Against that backdrop, December gold
GCZ21,
+0.28%

GC00,
+0.28%

rose $3.80, or 0.2%, to settle at $1,802.60 an ounce, marking the first most-active contract finish above $1,800 since Monday, FactSet data show.

According to a report from the World Gold Council released late Wednesday, total global gold demand posted a year-over-year decline for the third quarter, with investment in the precious metal down by more than 50% — led by a quarterly outflow in gold-backed exchange-traded funds.

A chunk of that decline was a result of outflows from global exchange-traded funds, which registered outflows of 26.7 metric tons, according to the report.  

Silver futures for December delivery
SIZ21,
-0.13%

SI00,
-0.13%
,
meanwhile, declined by 7 cents, or 0.3%, to $24.12 an ounce, after settling 0.4% higher a day ago.

Metals traders also weighed a decision by the European Central Bank, which left its monetary policy measured unchanged, as expected, saying it would continue to purchase assets via its pandemic emergency purchase program at a slower pace than seen in the second and third quarters. 

European Union interest rates are “set to remain at the low levels as the ECB research shows inflation will ease next year,” said Gaffney. “This is a very good environment for precious metals — rising inflation expectations with low interest rates.”

Given that, “we could see precious metal prices start marching higher as investors look to add more diversification to their portfolios,” he said.

Looking at the broader picture, “gold investors are realising that the major central banks as a whole will probably not tighten monetary policy too aggressively even if inflation remains elevated,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, in a Thursday note.

“The rationale is that there’s still much spare capacity in the economy and the impact of temporary factors will wane in the months ahead, causing inflation to cool and reduce the need for central banks to tighten aggressively,” wrote Razaqzada.

Gold prices on Wednesday briefly fell as the Bank of Canada said it was ending its quantitative-easing program, with an eye toward eventually raising interest rates. However, a pullback in yields, with the 10-year Treasury and the 30-year bond seeing their biggest yield drops in three months, helped support bullion buying.

Other metals traded on Comex Thursday finished higher, with December copper
HGZ21,
+1.00%

up 1.1% at $4.439 a pound.

January platinum
PLF22,
+0.56%

tacked on nearly 0.5% to $1,023.90 an ounce and December palladium
PAZ21,
+0.87%

settled at $1,989.40 an ounce, up 0.8%.

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